|
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Page
|
|
|
|
|
Part I
|
|
|
Item 1:
|
||
Item 1A:
|
||
Item 1B:
|
||
Item 2:
|
||
Item 3:
|
||
Item 4:
|
||
|
|
|
Part II
|
|
|
Item 5:
|
||
Item 6:
|
||
Item 7:
|
||
Item 7A:
|
||
Item 8:
|
||
Item 9:
|
||
Item 9A:
|
||
Item 9B:
|
||
|
|
|
Part III
|
|
|
Item 10:
|
||
Item 11:
|
||
Item 12:
|
||
Item 13:
|
||
Item 14:
|
||
|
|
|
Part IV
|
|
|
Item 15:
|
||
Item 16:
|
||
|
||
|
|
|
|
|
|
|
|
|
|||
|
Percentage of Revenues
|
|||||||
|
2018
|
|
2017
|
|
2016
|
|||
Pharmacy
(1)
|
76.4
|
%
|
|
75.0
|
%
|
|
75.0
|
%
|
Front store and other
(2)
|
23.6
|
%
|
|
25.0
|
%
|
|
25.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
(1)
|
Pharmacy includes LTC sales and sales in pharmacies within Target Corporation stores.
|
(2)
|
“Other” represents less than 5% of the “Front store and other” revenue category.
|
•
|
Commercial Medical
: The Health Care Benefits segment offers point-of-service (“POS”), preferred provider organization (“PPO”), health maintenance organization (“HMO”) and indemnity benefit (“Indemnity”) plans. Commercial medical products also include health savings accounts (“HSAs”) and consumer-directed health plans that combine traditional POS or PPO and/or dental coverage, subject to a deductible, with an accumulating benefit account (which may be funded by the plan sponsor and/or the member in the case of HSAs). Principal products and services are targeted specifically to large multi-site national, mid-sized and small employers, individual insureds and expatriates. The Company offers medical stop loss insurance coverage for certain employers who elect to self-insure their health benefits. Under this product, the Company assumes risk for costs associated with large individual claims and/or aggregate loss experience within an employer’s plan above a pre-set annual threshold.
|
•
|
Government Medical
: In select geographies, the Health Care Benefits segment offers Medicare Advantage plans, Medicare Supplement plans and prescription drug coverage for Medicare beneficiaries; participates in Medicaid and subsidized Children’s Health Insurance Programs (“CHIP”); and participates in demonstration projects for members who are eligible for both Medicare and Medicaid (“Duals”). These Government Medical products are further described below:
|
•
|
Medicare Advantage and PDP:
Through annual contracts with CMS, the Company offers HMO and PPO products for eligible individuals in certain geographic areas through the Medicare Advantage program. Members typically receive enhanced benefits over traditional fee-for-service Medicare coverage (“Original Medicare”), including reduced cost-sharing for preventive care, vision and other services. The Company offered network-based HMO and/or PPO plans in
1,317
counties in
40
states and Washington, D.C. in
2018
. The Company has expanded to
1,416
counties in
45
states and Washington, D.C. for
2019
. The Company is a national provider of drug benefits under the Medicare Part D prescription drug program to both individuals and EGWPs. All Medicare eligible individuals are eligible to participate in this voluntary prescription drug plan. Members typically receive
|
•
|
Medicare Supplement:
For certain Medicare eligible members, the Company offers supplemental coverage for certain health care costs not covered by Original Medicare. The products included in the Medicare Supplement portfolio help to cover some of the gaps in Original Medicare, and include coverage for Medicare deductibles and coinsurance amounts. The Company offered a wide selection of Medicare Supplement products in
49
states and Washington, D.C. in
2018
.
|
•
|
Medicaid and CHIP:
The Company offers health care management services to individuals eligible for Medicaid and CHIP under multi-year contracts with government agencies in various states that are subject to annual appropriations. CHIP are state-subsidized insurance programs that provide benefits for families with uninsured children. The Company offered these services on an Insured or ASC basis in
16
states in
2018
.
|
•
|
Duals:
The Company provides health coverage to beneficiaries who are dually eligible for both Medicare and Medicaid coverage. These members must meet certain income and resource requirements in order to qualify for this coverage. The Company coordinates 100% of the care for these members and may provide them with additional services in order to manage their health care costs. During
2018
, the Company offered services on an Insured basis to Duals in
four
states under demonstration projects.
|
•
|
Pharmacy
: The Company offers PBM services and specialty and home delivery pharmacy services. The Company also performs various PBM services for Aetna pharmacy customers consisting of: product development, Commercial formulary management, pharmacy rebate contracting and administration, sales and account management and precertification programs. The Pharmacy Services segment performs the administration of selected functions for retail pharmacy network contracting and claims administration; home delivery and specialty pharmacy order fulfillment and inventory purchasing and management; and certain administrative services. Other suppliers also provide certain PBM services.
|
•
|
Specialty
: The Health Care Benefits segment has a portfolio of additional health products and services that complement its medical products such as dental plans, behavioral health and employee assistance products, provider network access and vision products and workers’ compensation administrative services.
|
•
|
Consumer Health Products and Services
: The Company has a portfolio of products and services aimed at creating a holistic and integrated approach to individual health and wellness. These products and services complement the Commercial Medical and Government Medical products and enable enhanced delivery to and experience for customers.
|
In thousands
|
Insured
|
|
|
ASC
|
|
|
Total
|
|
Northeast
|
1,961
|
|
|
3,232
|
|
|
5,193
|
|
Southeast
|
1,752
|
|
|
2,886
|
|
|
4,638
|
|
Mid-America
|
1,632
|
|
|
2,530
|
|
|
4,162
|
|
West
|
1,618
|
|
|
4,510
|
|
|
6,128
|
|
Other
|
587
|
|
|
1,393
|
|
|
1,980
|
|
Total medical membership
|
7,550
|
|
|
14,551
|
|
|
22,101
|
|
|
|
|
|
|
|
•
|
Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments; and
|
•
|
Products for which the Company no longer solicits or accepts new customers such as large case pensions and long-term care insurance products.
|
•
|
The imposition on the Company and other health insurers, health plans and other market participants of significant fees, assessments and taxes, including an annual non-tax deductible industry-wide HIF that was $14.3 billion for 2018 and has been suspended for 2019. As currently enacted, the HIF will apply for 2020, be higher for 2020 than for 2018 and increase in 2021 and annually thereafter.
|
•
|
A non-tax deductible 40% excise tax on employer-sponsored health care benefits above a certain threshold beginning in 2022.
|
•
|
Reduced funding for Medicaid expansion, which began in 2017.
|
•
|
Under the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 significant, automatic across-the-board budget cuts (known as sequestration) began in March 2013, including Medicare spending cuts of not more than 2% of total program costs per year through 2024. Significant uncertainty remains as to whether and how the United States Congress will proceed with actions that create additional federal revenue and/or with entitlement reform. The Company cannot predict future federal Medicare or federal or state Medicaid funding levels or the impact that future federal or state budget actions or entitlement program reform, if it occurs, will have on the Company’s businesses, operations or results of operations, but the effects could be materially adverse, particularly on the Company’s Medicare and/or Medicaid revenues, MBRs and results of operations.
|
•
|
The European Union’s (“EU’s”) General Data Protection Regulation (“GDPR”) began to apply across the EU during 2018.
|
•
|
Other significant legislative and/or regulatory measures which are or recently have been under consideration include the following:
|
•
|
Elimination of the payment of manufacturer’s rebates on prescription drugs to PBMs, PDPs and Managed Medicaid organizations in connection with federally funded health care programs. In January 2019, HHS proposed regulations that would exclude such rebates from the safe harbor that currently is available for such payments under the federal anti-kickback statute.
|
•
|
Imposing requirements and restrictions on the design and/or administration of pharmacy benefits plans offered by the Company’s and its clients’ health plans and/or its PBM clients and/or the services the Company provides to those clients, including restricting or eliminating the use of formularies for prescription drugs; restricting the Company’s ability to require members to obtain drugs through a home delivery or specialty pharmacy; restricting the Company’s ability to place certain specialty or other drugs in the higher cost tiers of its pharmacy formularies; restricting the Company’s ability to make changes to drug formularies and/or clinical programs; limiting or eliminating rebates on pharmaceuticals; requiring the use of up front purchase price discounts on pharmaceuticals in lieu of rebates; restricting the Company’s ability to configure its health plan and retail pharmacy networks; and restricting or eliminating the use of certain drug pricing methodologies.
|
•
|
Increased federal or state government regulation of, or involvement in, the pricing and/or purchasing of drugs.
|
•
|
Restricting the Company’s ability to limit providers’ participation in its networks and/or remove providers from its networks by imposing network adequacy requirements or otherwise (including in its Medicare and Commercial Health Care Benefits products).
|
•
|
Imposing assessments on (or to be collected by) health plans or health carriers, which may or may not be passed onto their customers. These assessments may include assessments for insolvency, the uninsured, uncompensated care, Medicaid funding or defraying health care provider medical malpractice insurance costs.
|
•
|
Mandating coverage by the Company and its clients’ health plans for additional conditions and/or specified procedures, drugs or devices (for example, high cost pharmaceuticals, experimental pharmaceuticals and oral chemotherapy regimens).
|
•
|
Regulating electronic connectivity.
|
•
|
Mandating or regulating the disclosure of provider fee schedules and other data about the Company’s payments to providers.
|
•
|
Mandating or regulating disclosure of provider outcome and/or efficiency information.
|
•
|
Prescribing or limiting members’ financial responsibility for health care or other covered services they utilize.
|
•
|
Assessing the medical device status of HIT products and/or solutions, mobile consumer wellness tools and clinical decision support tools, which may require compliance with FDA requirements in relation to some of these products, solutions and/or tools.
|
•
|
Imposing payment levels for services rendered to the Company’s members by providers who do not have contracts with the Company.
|
•
|
Restricting the ability of employers and/or health plans to establish or impose member financial responsibility.
|
•
|
Amending or supplementing ERISA to impose greater requirements on PBMs, the administration of employer-funded benefit plans or limit the scope of current ERISA pre-emption, which would among other things expose us and other health plans to expanded liability for punitive and other extra-contractual damages and additional state regulation.
|
•
|
Grant, suspend and revoke the Company’s licenses to transact business;
|
•
|
Suspend or exclude the Company from participation in government programs;
|
•
|
Suspend or limit the Company’s authority to market products;
|
•
|
Regulate many aspects of the products and services the Company offers, including the pricing and underwriting of many of its products and services;
|
•
|
Assess damages, fines and/or penalties;
|
•
|
Terminate the Company’s contract with the government agency and/or withhold payments from the government agency to the Company;
|
•
|
Impose retroactive adjustments to premiums and require the Company to pay refunds to the government, customers and/or members;
|
•
|
Restrict the Company’s ability to conduct acquisitions or dispositions;
|
•
|
Require the Company to maintain minimum capital levels in its subsidiaries and monitor its solvency and reserve adequacy;
|
•
|
Regulate the Company’s investment activities on the basis of quality, diversification and other quantitative criteria; and/or
|
•
|
Exclude the Company’s plans from participating in Public Exchanges if they are deemed to have a history of “unreasonable” premium rate increases or fail to meet other criteria set by HHS or the applicable state.
|
•
|
Adversely affecting our brand and reputation;
|
•
|
Adversely affecting our ability to market and sell our products and/or services and/or retain our existing customers and members;
|
•
|
Requiring us to change our products and/or services;
|
•
|
Reducing or restricting the compensation we can receive for our products and/or services; and/or
|
•
|
Increasing or significantly changing the regulatory and legislative requirements with which we must comply.
|
•
|
The clinical quality, patient safety and other risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors (any failure by us to adhere to the laws and regulations applicable to the dispensing of drugs could subject our Pharmacy Services businesses to civil and criminal penalties).
|
•
|
Federal and state anti-kickback and other laws that govern our relationship with drug manufacturers, customers and consumers.
|
•
|
Compliance requirements under ERISA, including fiduciary obligations in connection with the development and implementation of items such as drug formularies and preferred drug listings.
|
•
|
Federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy benefit industry practices.
|
•
|
Failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization;
|
•
|
Inappropriate application of accounting principles or a significant failure of internal control over financial reporting, which could lead to a restatement of our results of operations and/or a deterioration in the soundness and accuracy of our reported results of operations; and
|
•
|
Failure to adequately manage our run-off businesses and/or our regulatory and financial exposure to businesses we have sold, including Aetna’s divested standalone Medicare Part D, domestic group life insurance, group disability insurance and absence management businesses.
|
•
|
Significantly reducing the value and/or liquidity of the debt securities we hold in our investment portfolio and creating realized capital losses that reduce our results of operations and/or unrealized capital losses that reduce our shareholders’ equity;
|
•
|
Keeping interest rates low on high-quality short-term or medium-term debt securities (such as we have experienced during recent years) and thereby materially reducing our net investment income and results of operations as the proceeds from securities in our investment portfolio that mature or are otherwise disposed of continue to be reinvested in lower yielding securities;
|
•
|
Reducing the fair values of our investments if interest rates rise;
|
•
|
Causing non-performance or defaults on their obligations to us by third parties, including customers, issuers of securities in our investment portfolio, mortgage borrowers and/or reinsurance and/or derivatives counterparties;
|
•
|
Making it more difficult to value certain of our investment securities, for example if trading becomes less frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those securities and cause period-to-period volatility in our net income and shareholders’ equity;
|
•
|
Reducing our ability to issue short-term debt securities at attractive interest rates, thereby increasing our interest expense and decreasing our results of operations; and
|
•
|
Reducing our ability to issue other securities.
|
•
|
Our ability to successfully combine the businesses of CVS Health and Aetna;
|
•
|
whether the combined businesses will perform as expected;
|
•
|
the possibility that we paid more for Aetna than the value we will derive from the acquisition;
|
•
|
the reduction of our cash available for operations and other uses and the incurrence of indebtedness to finance the acquisition; and
|
•
|
the assumption of known and unknown liabilities of Aetna.
|
•
|
combining the companies’ separate operational, financial, reporting and corporate functions;
|
•
|
integrating the companies’ technologies, products and services;
|
•
|
identifying and eliminating redundant and underperforming operations and assets;
|
•
|
harmonizing the companies’ operating practices, employee development, compensation and benefit programs, internal controls and other policies, procedures and processes;
|
•
|
addressing possible differences in business backgrounds, corporate cultures and management philosophies;
|
•
|
consolidating the companies’ corporate, administrative and information technology infrastructure;
|
•
|
coordinating sales, distribution and marketing efforts;
|
•
|
managing the movement of certain businesses and positions to different locations;
|
•
|
maintaining existing agreements with customers, providers and vendors and avoiding delays in entering into new agreements with prospective customers, providers and vendors;
|
•
|
operating in industry sectors in which we and our current management may have little or no experience;
|
•
|
coordinating geographically dispersed organizations;
|
•
|
consolidating offices of CVS Health and Aetna that are currently in or near the same location; and
|
•
|
effecting the actions that are required by regulatory approvals we obtained in connection with completing the Aetna Acquisition.
|
•
|
We frequently compete with other firms, some of which may have greater financial and other resources and a greater tolerance for risk, to acquire attractive companies;
|
•
|
The acquired, alliance and/or joint venture businesses may not perform as projected;
|
•
|
The goodwill or other intangible assets established as a result of our acquisitions may be incorrectly valued or may become non-recoverable;
|
•
|
We may assume unanticipated liabilities, including those that were not disclosed to us or which we underestimated;
|
•
|
The acquired businesses, or the pursuit of other inorganic growth strategies, could disrupt or compete with our existing businesses, distract management, result in the loss of key employees, divert resources, result in tax costs or inefficiencies and make it difficult to maintain our current business standards, controls, information technology systems, policies, procedures and performance;
|
•
|
We may finance future acquisitions and other inorganic growth strategies by issuing common stock for some or all of the purchase price, which would dilute the ownership interests of our shareholders;
|
•
|
We may incur significant debt in connection with acquisitions (whether to finance acquisitions or by assuming debt from the businesses we acquire);
|
•
|
We may not have the expertise to manage and profitably grow the businesses we acquire, and we may need to rely on the retention of key personnel and other suppliers of businesses we acquire, which may be difficult or impossible to accomplish;
|
•
|
We may enter into merger or purchase agreements but, due to reasons within or outside our control, fail to complete the related transactions, which could result in termination fees or other penalties that could be material, material disruptions to our businesses and operations and adversely affect our brand and reputation;
|
•
|
In order to complete a proposed acquisition, we may be required to divest certain portions of our business;
|
•
|
We may be involved in litigation related to mergers or acquisitions, including for matters which occurred prior to the applicable closing, which may be costly to defend and may result in adverse rulings against us that could be material; and
|
•
|
The integration into our businesses of the businesses and entities we acquire may affect the way in which existing laws and regulations apply to us, including subjecting us to laws and regulations that did not previously apply to us.
|
•
|
Integrating personnel, operations and systems (including internal control environments and compliance policies), while maintaining focus on producing and delivering consistent, high quality products and services;
|
•
|
Coordinating geographically dispersed organizations;
|
•
|
Disruption of management’s attention from our ongoing business operations;
|
•
|
Retaining existing customers and attracting new customers; and
|
•
|
Managing inefficiencies associated with integrating our operations.
|
•
|
An owned mail service dispensing pharmacy located in Texas;
|
•
|
Leased mail order dispensing pharmacies located in Hawaii, Illinois and Pennsylvania;
|
•
|
Leased call centers located in California, Missouri, Pennsylvania, Tennessee and Texas;
|
•
|
Approximately
40
leased on-site pharmacy stores, approximately
25
leased retail specialty pharmacy stores, approximately
20
specialty mail order pharmacies and approximately
90
branches for infusion and enteral services.
|
•
|
Approximately 8,200 retail stores, of which approximately 4% were owned. Net selling space for retail stores was approximately
80.5 million
square feet as of
December 31, 2018
. Approximately 25% of the store base was opened or significantly remodeled within the last five years;
|
•
|
Approximately 1,700 retail pharmacies and approximately 80 clinics in Target stores;
|
•
|
Nine
owned distribution centers located in eight states and
13
leased distribution facilities located in twelve additional states and Brazil. The
22
distribution centers totaled approximately
10.4 million
square feet as of
December 31, 2018
; and
|
•
|
Six owned LTC pharmacies, approximately
150
leased LTC pharmacies in
46
states and
one
owned LTC repackaging facility.
|
|
|
|
|
||||
In billions
|
|
|
Remaining as of
|
||||
Authorization Date
|
Authorized
|
|
December 31, 2018
|
||||
November 2, 2016 (“2016 Repurchase Program”)
|
$
|
15.0
|
|
|
$
|
13.9
|
|
December 15, 2014 (“2014 Repurchase Program”)
|
10.0
|
|
|
—
|
|
||
|
|
|
|
|
|
|
|
|
|
||||
|
Number of
|
|
|
|
Number of securities
|
||||
|
securities to be
|
|
Weighted
|
|
remaining available for
|
||||
|
issued upon
|
|
average exercise
|
|
future issuance under
|
||||
|
exercise of
|
|
price of
|
|
equity compensation
|
||||
|
outstanding
|
|
outstanding
|
|
plans (excluding
|
||||
|
options, warrants
|
|
options, warrants
|
|
securities reflected in
|
||||
|
and rights
(1)(2)
|
|
and rights
|
|
first column)
(1)
|
||||
|
(a)
|
|
(b)
|
|
(c)
|
||||
Equity compensation plans approved by stockholders
(3)
|
27,102
|
|
|
$
|
77.51
|
|
|
25,927
|
|
Equity compensation plans not approved by stockholders
(4)(5)
|
5,136
|
|
|
43.01
|
|
|
31,633
|
|
|
Total
|
32,238
|
|
|
$
|
75.04
|
|
|
57,560
|
|
|
|
|
|
|
|
(1)
|
Shares in thousands.
|
(2)
|
Consists of: (i) 18,597 shares of common stock underlying outstanding options, (ii) 1,435 shares of common stock issuable upon the exercise of outstanding stock appreciation rights (“SARs”) and (iii) 12,206 shares of common stock issuable on the vesting of outstanding restricted stock units, deferred stock units and performance stock units, assuming target level performance in the case of performance stock units. The number of shares included with respect to
|
(3)
|
Consists of the CVS Health 2017 Incentive Compensation Plan.
|
(4)
|
Consists of the Amended Aetna Inc. 2010 Stock Incentive Plan (the “Aetna Stock Plan”).
|
(5)
|
Amount in column (c) consists of the maximum number of shares of the Company’s common stock available for future issuance under the Aetna Stock Plan as of December 31, 2018.
|
1.
|
Financial Statements. The following financial statements, related notes and report are incorporated by reference from the Annual Report in Item 8 hereof:
|
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
|
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 2017 and 2016
|
Consolidated Balance Sheets as of December 31, 2018 and 2017
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
|
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016
|
Notes to Consolidated Financial Statements
|
Report of Independent Registered Public Accounting Firm
|
2.
|
Financial Statement Schedules. All financial statement schedules are omitted because they are not applicable, not required under the instructions, or the information is included in the consolidated financial statements or related notes.
|
3.
|
Exhibits. The exhibits listed in the “Index to Exhibits” in this Item 15 are filed or incorporated by reference as part of this Annual Report on Form 10-K. Exhibits marked with an asterisk (*) are management contracts or compensatory plans or arrangements. Exhibits other than those listed are omitted because they are not required to be listed or are not applicable. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant hereby agrees to furnish to the Securities and Exchange Commission a copy of any omitted instrument that is not required to be listed.
|
|
|
|
Exhibit
|
|
Description
|
2
|
|
Plan of acquisition, reorganization, arrangement, liquidation or succession
|
2.1
|
|
|
2.2
|
|
|
2.3
|
|
|
|
|
|
3
|
|
Articles of Incorporation and Bylaws
|
3.1
|
|
|
3.2
|
|
|
|
|
|
4
|
|
Instruments defining the rights of security holders, including indentures
|
4.1
|
|
|
4.2
|
|
|
4.3
|
|
|
4.4
|
|
4.5
|
|
|
4.6
|
|
|
4.7
|
|
|
4.8
|
|
|
4.9
|
|
|
4.10
|
|
|
4.11
|
|
|
|
|
|
10
|
|
Material Contracts
|
10.1
|
|
|
10.2
|
|
|
10.3
|
|
|
10.4
|
|
|
10.5
|
|
|
10.6
|
|
|
10.7
|
|
|
10.8
|
|
|
10.9
|
|
|
10.10
|
|
|
10.11
|
|
10.12
|
|
|
10.13
|
|
|
10.14*
|
|
|
10.15*
|
|
|
10.16*
|
|
|
10.17*
|
|
|
10.18*
|
|
|
10.19*
|
|
|
10.20*
|
|
|
10.21*
|
|
|
10.22*
|
|
|
10.23*
|
|
|
10.24*
|
|
|
10.25*
|
|
|
10.26*
|
|
|
10.27*
|
|
|
10.28*
|
|
|
10.29*
|
|
|
10.30*
|
|
10.31*
|
|
|
10.32*
|
|
|
10.33*
|
|
|
10.34*
|
|
|
10.35*
|
|
|
10.36*
|
|
|
10.37*
|
|
|
10.38*
|
|
|
10.39*
|
|
|
10.40*
|
|
|
10.41*
|
|
|
10.42*
|
|
|
10.43*
|
|
|
10.44*
|
|
|
10.45*
|
|
|
10.46*
|
|
|
10.47*
|
|
|
10.48*
|
|
|
10.49*
|
|
|
10.50*
|
|
|
10.51*
|
|
|
10.52*
|
|
|
10.53*
|
|
|
10.54*
|
|
|
10.55*
|
|
10.56*
|
|
|
10.57*
|
|
|
10.58*
|
|
|
10.59*
|
|
|
10.60*
|
|
|
10.61*
|
|
|
10.62*
|
|
|
10.63*
|
|
|
|
|
|
13
|
|
Annual Report to security holders, Form 10-Q or quarterly report to security holders
|
13.1
|
|
|
|
|
|
21
|
|
Subsidiaries of the registrant
|
21.1
|
|
|
|
|
|
23
|
|
Consents of experts and counsel
|
23.1
|
|
|
|
|
|
31
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
31.1
|
|
|
31.2
|
|
|
|
|
|
32
|
|
Section 1350 Certifications
|
32.1
|
|
|
32.2
|
|
|
|
|
|
101
|
|
Interactive Data File
|
101
|
|
The following materials from the CVS Health Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders’ Equity and (vi) the related Notes to Consolidated Financial Statements.
|
|
|
|
|
|
CVS HEALTH CORPORATION
|
|
Date:
|
February 28, 2019
|
By:
|
/s/ EVA C. BORATTO
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Signature
|
|
Title(s)
|
|
Date
|
|
|
|
|
|
/s/ FERNANDO AGUIRRE
|
|
Director
|
|
February 28, 2019
|
Fernando Aguirre
|
|
|
|
|
|
|
|
|
|
/s/ MARK T. BERTOLINI
|
|
Director
|
|
February 28, 2019
|
Mark T. Bertolini
|
|
|
|
|
|
|
|
|
|
/s/ RICHARD M. BRACKEN
|
|
Director
|
|
February 28, 2019
|
Richard M. Bracken
|
|
|
|
|
|
|
|
|
|
/s/ C. DAVID BROWN II
|
|
Director
|
|
February 28, 2019
|
C. David Brown II
|
|
|
|
|
|
|
|
|
|
/s/ EVA C. BORATTO
|
|
Executive Vice President and Chief Financial
|
|
February 28, 2019
|
Eva C. Boratto
|
|
Officer (Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/ JAMES D. CLARK
|
|
Senior Vice President - Controller and Chief
|
|
February 28, 2019
|
James D. Clark
|
|
Accounting Officer (Principal Accounting Officer)
|
|
|
|
|
|
|
|
/s/ ALECIA A. DECOUDREAUX
|
|
Director
|
|
February 28, 2019
|
Alecia A. DeCoudreaux
|
|
|
|
|
|
|
|
|
|
/s/ NANCY-ANN M. DEPARLE
|
|
Director
|
|
February 28, 2019
|
Nancy-Ann M. DeParle
|
|
|
|
|
|
|
|
|
|
/s/ DAVID W. DORMAN
|
|
Chair of the Board and Director
|
|
February 28, 2019
|
David W. Dorman
|
|
|
|
|
|
|
|
|
|
/s/ ROGER N. FARAH
|
|
Director
|
|
February 28, 2019
|
Roger N. Farah
|
|
|
|
|
|
|
|
|
|
/s/ ANNE M. FINUCANE
|
|
Director
|
|
February 28, 2019
|
Anne M. Finucane
|
|
|
|
|
|
|
|
|
|
/s/ EDWARD J. LUDWIG
|
|
Director
|
|
February 28, 2019
|
Edward J. Ludwig
|
|
|
|
|
|
|
|
|
|
/s/ LARRY J. MERLO
|
|
President and Chief Executive Officer
|
|
February 28, 2019
|
Larry J. Merlo
|
|
(Principal Executive Officer) and Director
|
|
|
|
|
|
|
|
/s/ JEAN-PIERRE MILLON
|
|
Director
|
|
February 28, 2019
|
Jean-Pierre Millon
|
|
|
|
|
|
|
|
|
|
/s/ MARY L. SCHAPIRO
|
|
Director
|
|
February 28, 2019
|
Mary L. Schapiro
|
|
|
|
|
|
|
|
|
|
/s/ RICHARD J. SWIFT
|
|
Director
|
|
February 28, 2019
|
Richard J. Swift
|
|
|
|
|
|
|
|
|
|
/s/ WILLIAM C. WELDON
|
|
Director
|
|
February 28, 2019
|
William C. Weldon
|
|
|
|
|
|
|
|
|
|
/s/ TONY L. WHITE
|
|
Director
|
|
February 28, 2019
|
Tony L. White
|
|
|
|
|
|
|
Page
|
ARTICLE I.
|
DEFINITIONS
|
3
|
|
|
|
Section 1.01.
|
Definitions
|
3
|
|
|
|
ARTICLE II.
|
TRANSFER AND ACQUISITION OF ASSETS
|
20
|
|
|
|
Section 2.01.
|
Purchase and Sale of the Transferred Assets
|
20
|
Section 2.02.
|
Excluded Assets
|
21
|
Section 2.03.
|
Procedures for Assets Not Transferrable
|
23
|
Section 2.04.
|
Assumption of the Assumed Liabilities
|
24
|
Section 2.05.
|
Excluded Liabilities
|
24
|
Section 2.06.
|
Place and Date of Closing
|
25
|
Section 2.07.
|
Consideration
|
26
|
Section 2.08.
|
Closing Deliveries
|
28
|
Section 2.09.
|
Adjustment to Initial Transfer Amount after Closing
|
31
|
Section 2.10.
|
Post-Closing Adjustments
|
35
|
|
|
|
ARTICLE III.
|
REPRESENTATIONS AND WARRANTIES OF SELLER
|
35
|
|
|
|
Section 3.01.
|
Organization; Standing and Authority
|
35
|
Section 3.02.
|
Authorization
|
36
|
Section 3.03.
|
Sufficiency of Assets
|
36
|
Section 3.04.
|
No Conflict or Violation
|
36
|
Section 3.05.
|
Consents and Approvals
|
37
|
Section 3.06.
|
Certain Contracts
|
37
|
Section 3.07.
|
Title to Assets
|
39
|
Section 3.08.
|
Absence of Litigation
|
39
|
Section 3.09.
|
Compliance With Laws
|
39
|
Section 3.10.
|
Employee Matters
|
40
|
Section 3.11.
|
Permits
|
42
|
Section 3.12.
|
Intellectual Property
|
43
|
Section 3.13.
|
Insurance Business
|
44
|
Section 3.14.
|
Producers; Sale Practices
|
44
|
Section 3.15.
|
Real Property
|
45
|
Section 3.16.
|
Ceded Reinsurance Contracts
|
45
|
Section 3.17.
|
Tax
|
46
|
Section 3.18.
|
Financial Statements; Books and Records
|
47
|
Section 3.19.
|
Specified Portfolio
|
48
|
Section 3.20.
|
No Undisclosed Liabilities
|
49
|
Section 3.21.
|
Actuarial Report
|
49
|
Section 3.22.
|
Absence of Certain Changes or Events
|
49
|
Section 3.23.
|
Brokers and Finders
|
49
|
Section 3.24.
|
Data Protection and Privacy; IT Systems
|
49
|
Section 3.25.
|
Distribution of Group Insurance Contracts
|
50
|
Section 3.26.
|
Administration of the Subject Contracts
|
51
|
ARTICLE IV.
|
REPRESENTATIONS AND WARRANTIES OF PURCHASER
|
51
|
|
|
|
Section 4.01.
|
Organization, Standing
|
51
|
Section 4.02.
|
Authorization
|
51
|
Section 4.03.
|
No Conflict or Violation
|
52
|
Section 4.04.
|
Consents and Approvals
|
52
|
Section 4.05.
|
Absence of Litigation
|
52
|
Section 4.06.
|
Compliance With Laws
|
52
|
Section 4.07.
|
Financial Ability
|
53
|
Section 4.08.
|
Permits
|
54
|
Section 4.09.
|
Brokers and Finders
|
54
|
Section 4.10.
|
Absence of Triggering Event
|
54
|
|
|
|
ARTICLE V.
|
COVENANTS
|
54
|
|
|
|
Section 5.01.
|
Conduct of Business
|
54
|
Section 5.02.
|
Pre-Closing Access to Information
|
56
|
Section 5.03.
|
Post-Closing Access to Information
|
56
|
Section 5.04.
|
Confidentiality
|
58
|
Section 5.05.
|
Maintenance and Transfer of Books and Records
|
59
|
Section 5.06.
|
Consents, Approvals and Filings
|
60
|
Section 5.07.
|
Further Assurances
|
61
|
Section 5.08.
|
Privacy and Data Security Compliance; Use of Information
|
61
|
Section 5.09.
|
Non-Solicitation of Employees
|
62
|
Section 5.10.
|
Use of Names
|
62
|
Section 5.11.
|
Pre-Closing Management of Specified Portfolio
|
63
|
Section 5.12.
|
Properties
|
66
|
Section 5.13.
|
Non-Competition
|
67
|
|
|
|
ARTICLE VI.
|
EMPLOYEE MATTERS
|
69
|
|
|
|
Section 6.01.
|
Employee Matters
|
69
|
Section 6.02.
|
No Third Party Beneficiaries
|
75
|
|
|
|
ARTICLE VII.
|
TAX MATTERS
|
75
|
|
|
|
Section 7.01.
|
Allocation of Consideration
|
75
|
Section 7.02.
|
Transfer Taxes
|
76
|
Section 7.03.
|
Cooperation and Exchange of Information
|
76
|
Section 7.04.
|
Miscellaneous
|
76
|
|
|
|
ARTICLE VIII.
|
CONDITIONS TO CLOSING
|
77
|
|
|
|
Section 8.01.
|
Conditions to Obligations of Each Party
|
77
|
Section 8.02.
|
Conditions to Obligations of Purchaser
|
77
|
Section 8.03.
|
Conditions to Obligations of Seller
|
78
|
|
|
|
ARTICLE IX.
|
TERMINATION PRIOR TO CLOSING
|
78
|
|
|
|
Section 9.01.
|
Termination of Agreement
|
78
|
Section 9.02.
|
Termination Procedure
|
79
|
Section 9.03.
|
Survival
|
79
|
ARTICLE X.
|
INDEMNIFICATION
|
80
|
|
|
|
Section 10.01.
|
Survival
|
80
|
Section 10.02.
|
Indemnification
|
80
|
Section 10.03.
|
Certain Limitations
|
81
|
Section 10.04.
|
Definitions
|
82
|
Section 10.05.
|
Procedures for Third Party Claims
|
83
|
Section 10.06.
|
Direct Claims
|
85
|
Section 10.07.
|
Sole Remedy
|
85
|
Section 10.08.
|
Certain Other Matters
|
85
|
|
|
|
ARTICLE XI.
|
GENERAL PROVISIONS
|
86
|
|
|
|
Section 11.01.
|
Publicity
|
86
|
Section 11.02.
|
Expenses
|
86
|
Section 11.03.
|
Notices
|
86
|
Section 11.04.
|
Entire Agreement
|
87
|
Section 11.05.
|
Severability
|
88
|
Section 11.06.
|
Assignment
|
88
|
Section 11.07.
|
Waivers and Amendments
|
88
|
Section 11.08.
|
Disclosure Schedules
|
88
|
Section 11.09.
|
Governing Law; Submission to Jurisdiction; Waiver of Jury Trial
|
88
|
Section 11.10.
|
Rules of Construction
|
89
|
Section 11.11.
|
Certain Limitations
|
90
|
Section 11.12.
|
No Third Party Beneficiaries
|
91
|
Section 11.13.
|
Execution in Counterparts
|
91
|
Section 11.14.
|
Equitable Remedies
|
91
|
Schedule I
|
Assigned Contracts
|
Schedule II
|
Transferred Assets
|
Schedule III
|
Assumed Liabilities
|
Schedule IV
|
Pre-Closing Investment Guidelines
|
Schedule V
|
Transaction Accounting Principles
|
Schedule VI
|
Real Estate
|
Exhibit A
|
Form of Commutation Agreement
|
Exhibit B
|
Form of Reinsurance Agreement
|
Exhibit C
|
Form of Trust Agreement
|
Exhibit D
|
Form of Administrative Services Agreement
|
Exhibit E
|
Form of Transition Services Agreement
|
Exhibit F
|
Form of Intellectual Property Agreement
|
Exhibit G
|
Form of Distribution Agreement
|
Exhibit H
|
Form of Bill of Sale and Assignment and Assumption Agreement
|
Exhibit I
|
Form of Trademark License Agreement
|
Exhibit J
|
Form of Portland Location Assignment Agreement
|
Exhibit K-1
|
Form of Plantation Sublease
|
Exhibit K-2
|
Form of South Portland Sublease
|
Exhibit K-3
|
Form of Omaha Sublease
|
Exhibit L
|
Form of Hartford License Agreement
|
Exhibit M
|
Form of Employee Leasing Agreement
|
Exhibit N
|
Form of Data Processing Side Letter
|
|
(i)
|
$1,382,000,000, constituting the ceding commission to be paid to the Ceding Company in connection with the Reinsurance Agreement (the “Ceding Commission”), which amount shall constitute consideration for the reinsurance arrangements contemplated by the Reinsurance Agreement; and
|
|
(ii)
|
$68,000,000 (the “Asset Consideration”) representing the aggregate purchase price for the Transferred Assets.
|
|
(i)
|
Section 2.07(c)(i) of the Seller Disclosure Schedule contains, for illustrative purposes, a pro forma Closing Statement assuming, for this purpose, that the Closing occurred, and the Reinsurance Agreement became effective, as of the Reference Date (the “Reference Closing Statement”).
|
|
(ii)
|
Section 2.07(c)(ii) of the Seller Disclosure Schedule contains a schedule of cash and Investment Assets held by the Ceding Company or AHLIC in respect of the Business as of the Reference Date (such portfolio, as it may have been or will be adjusted or changed between the Reference Date and the Closing Date in accordance with Sections 3.19 and 5.11 , the “Specified Portfolio”), which portfolio had an aggregate Accounting Value as of the Reference Date equal to the Required Asset Value as of the Reference Date.
|
|
(iii)
|
Not less than five Business Days prior to the anticipated Closing Date, Seller shall prepare and deliver to Purchaser an estimated Closing Statement as of the anticipated Accounting Date (the “Estimated Closing Statement”). The Estimated Closing Statement shall be prepared in accordance with the Transaction Accounting Principles applied in a manner consistent with the preparation of the Reference Closing Statement and be in the same format as the Reference Closing Statement.
|
|
(i)
|
Not less than two Business Days prior to the anticipated Closing Date, Seller shall prepare and deliver to Purchaser a calculation of the Closing Required Asset Value, which calculation will be based on the Required Asset Value reflected in the Estimated Closing Statement and will take into account all Capital Gain or Loss Adjustments and all Reallocated Asset Value Adjustments required pursuant to Section 5.11 or Section 3.19(b) through the Closing Date (the “Estimated Closing Required Asset Value”).
|
|
(ii)
|
The “Transferred Portfolio” will be determined as follows:
|
|
(A)
|
if the Accounting Value of the Specified Portfolio as of the Closing Date equals the Closing Required Asset Value, the Transferred Portfolio will comprise all, and only, the cash and Investment Assets in the Specified Portfolio as of immediately prior to the Closing;
|
|
(B)
|
if the Accounting Value of the Specified Portfolio as of the Closing Date is less than the Closing Required Asset Value, the Transferred Portfolio will comprise (x) all of the cash and Investment Assets in the Specified Portfolio as of immediately prior to the Closing and (y) cash or other Investment Assets selected by Seller in accordance with the Pre-Closing Investment Guidelines that have an aggregate Fair Market Value equal to the amount of such shortfall; and
|
|
(C)
|
if the Accounting Value of the Specified Portfolio as of the Closing Date is greater than the Closing Required Asset Value, Seller will select for removal from the Specified Portfolio cash or Investment Assets that have an aggregate Accounting Value equal to such excess in accordance with the Selection Waterfall. The cash and Investment Assets remaining in the Specified Portfolio after such removal will be the Transferred Portfolio.
|
|
(iii)
|
Concurrently with the delivery by Seller to Purchaser of the calculation of the Estimated Closing Required Asset Value pursuant to clause (i) of this Section 2.07(d) , Seller will also deliver to Purchaser (A) a schedule showing the cash and Investment Assets in the Transferred Portfolio and its estimated calculation of the aggregate Accounting Value of the cash and Investment Assets in the Transferred Portfolio as of immediately prior to the Closing (the “Estimated Asset Value Statement”), and (B) a calculation of Seller’s estimate of the Required Balance (as defined in the Reinsurance Agreement) as of the Closing Date based on amounts set forth on the Estimated Closing Statement and calculated using the aggregate FMV-Ex Accrued and the aggregate Book Value of the Transferred Portfolio (the “Estimated Required Balance”).
|
|
(i)
|
in addition to the payment Purchaser is required to make to Seller pursuant to
Section 2.07(b)
above, Purchaser shall pay to Seller, by wire transfer of immediately available funds to an account or accounts designated in writing to Purchaser by Seller at least two Business Days prior to the Closing Date, an amount equal to the Ceding Commission; and
|
|
(ii)
|
Seller shall cause the Ceding Company (or AHLIC on behalf of the Ceding Company) to deposit into the Trust Account, on behalf of Purchaser, the cash and Investment Assets in the Transferred Portfolio;
provided
that:
|
|
(A)
|
if on the Closing Date the aggregate Fair Market Value of the cash and Investment Assets in the Transferred Portfolio exceeds the Estimated Required Balance, then Seller shall cause the Ceding Company (or AHLIC on behalf of the Ceding Company) to transfer to Purchaser cash or Investment Assets from the Transferred Portfolio selected by Purchaser with a Fair Market Value equal to such excess and shall cause the Ceding Company (or AHLIC on behalf of the Ceding Company) to transfer the remainder of the cash and Investment Assets in the Transferred Portfolio to the Trust Account; and
|
|
(B)
|
if on the Closing Date the aggregate Fair Market Value of the cash and Investment Assets in the Transferred Portfolio is less than the Estimated Required Balance, Purchaser shall, at the Closing, transfer to the Trust Account Authorized Investments (as defined in the Trust Agreement) having a Fair Market Value as of the Closing Date equal to such shortfall.
|
|
(i)
|
a copy of the Commutation Agreement duly executed by the Ceding Company and AHLIC;
|
|
(ii)
|
a counterpart to the Reinsurance Agreement duly executed by the Ceding Company;
|
|
(iii)
|
a counterpart to the Trust Agreement duly executed by the Ceding Company;
|
|
(iv)
|
a counterpart to the Administrative Services Agreement duly executed by the Ceding Company;
|
|
(v)
|
a counterpart to the Transition Services Agreement duly executed by the Ceding Company;
|
|
(vi)
|
a counterpart to the Intellectual Property Agreement duly executed by Seller and the Ceding Company;
|
|
(vii)
|
a counterpart to the Distribution Agreement duly executed by each of the Ceding Company and Carefree Insurance Services, Inc.;
|
|
(viii)
|
a counterpart to the Bill of Sale and Assignment and Assumption Agreement duly executed by Seller and the Ceding Company;
|
|
(ix)
|
a counterpart to the Trademark License Agreement duly executed by Seller and the Ceding Company;
|
|
(x)
|
a counterpart to the Portland Location Assignment Agreement, duly executed by the Ceding Company;
|
|
(xi)
|
a counterpart to the sublease in the form attached hereto as Exhibit K-1 (the “Plantation Sublease”), duly executed by the Ceding Company;
|
|
(xii)
|
a counterpart to the sublease in the form attached hereto as Exhibit K-2 (the “South Portland Sublease”), duly executed by the Ceding Company;
|
|
(xiii)
|
a counterpart to the sublease in the form attached hereto as Exhibit K-3 (the “Omaha Sublease”), duly executed by Aetna Health Management, LLC;
|
|
(xiv)
|
a counterpart to the license agreement in the form attached hereto as Exhibit L (the “Hartford License Agreement”), duly executed by the Ceding Company;
|
|
(xv)
|
a counterpart to the Employee Leasing Agreement in the form attached hereto as Exhibit M (the “Employee Leasing Agreement”), duly executed by Seller;
|
|
(xvi)
|
a counterpart to the Data Processing Side Letter duly executed by the Ceding Company;
|
|
(xvii)
|
a certificate of Seller duly executed by an authorized officer of Seller, dated as of the Closing Date, certifying as to Seller’s compliance with the conditions set forth in Section 8.02(a) and Section 8.02(b); and
|
|
(xviii)
|
such other agreements, instruments and documents as are contemplated by this Agreement or the other Transaction Agreements to be executed and delivered by Seller or any of its Affiliates on the Closing Date.
|
|
(i)
|
a counterpart to the Reinsurance Agreement duly executed by Purchaser;
|
|
(ii)
|
a counterpart to the Trust Agreement duly executed by Purchaser;
|
|
(iii)
|
a counterpart to the Administrative Services Agreement duly executed by Purchaser;
|
|
(iv)
|
a counterpart to the Transition Services Agreement duly executed by Purchaser;
|
|
(v)
|
a counterpart to the Intellectual Property Agreement duly executed by Hartford Fire;
|
|
(vi)
|
a counterpart to the Distribution Agreement duly executed by Purchaser;
|
|
(vii)
|
a counterpart to the Bill of Sale and Assignment and Assumption Agreement duly executed Purchaser;
|
|
(viii)
|
a counterpart to the Trademark License Agreement duly executed by Hartford Fire;
|
|
(ix)
|
a counterpart to a side letter in the form attached hereto as Exhibit N (the “Data Processing Side Letter”), duly executed by Purchaser, acknowledging that the Ceding Company, its Affiliates (as defined in the Transition Services Agreement) and their respective subcontractors have processed, and will continue to process, data relating to the Business in Alaska, Hawaii, India and the Philippines;
|
|
(x)
|
a counterpart to the Portland Location Assignment Agreement, duly executed by Hartford Fire;
|
|
(xi)
|
a counterpart to the Plantation Sublease, duly executed by Hartford Fire;
|
|
(xii)
|
a counterpart to the South Portland Sublease, duly executed by Hartford Fire;
|
|
(xiii)
|
a counterpart to the Omaha Sublease, duly executed by Hartford Fire;
|
|
(xiv)
|
a counterpart to the Hartford License Agreement, duly executed by Hartford Fire;
|
|
(xv)
|
a counterpart to the Employee Leasing Agreement, duly executed by Purchaser;
|
|
(xvi)
|
a certificate of Purchaser duly executed by an authorized officer of Purchaser, dated as of the Closing Date, certifying as to Purchaser’s compliance with the conditions set forth in Section 8.03(a) , Section 8.03(b) and 8.03(c); and
|
|
(xvii)
|
such other agreements, instruments and documents as are contemplated by this Agreement or the other Transaction Agreements to be executed and delivered by Seller or any of its Affiliates on the Closing Date.
|
|
(i)
|
Purchaser shall pay to the Ceding Company the True-Up Amount, if positive; or
|
|
(ii)
|
Seller shall cause the Ceding Company to pay into the Trust Account the absolute value of the True-Up Amount, if negative.
|
|
(i)
|
the Assigned Contracts;
|
|
(ii)
|
any contract that (A) contains a restriction on the ability of the Business to solicit specified customers or prospective customers for the purchase, renewal, lapse or amendment of any Group Contract or (B) limits in any way the ability of the Business to compete or engage in the conduct of the Business or in the marketing, selling and administration of any Group Contract, in each case, that would be legally binding on Purchaser or any of its Affiliates following the consummation of the transactions contemplated hereby;
|
|
(iii)
|
mortgages, indentures, loan or credit agreements, security agreements and other agreements and instruments relating to the borrowing of money or extension of credit directly by or to Seller or an Affiliate thereof in respect of the Business or the direct or indirect guarantee by Seller or an Affiliate thereof for the benefit of the Business of any obligation for borrowed money of any other Person, in each case other than Investment Assets held in the ordinary course of business consistent with the Investment Guidelines;
|
|
(iv)
|
any retention agreements providing for payments to any Employee;
|
|
(v)
|
any contract restricting or granting rights to use or practice rights under the Transferred Intellectual Property;
|
|
(vi)
|
any contract that is primarily related to the Business but is not an Assigned Contract (each, a “Primary Contract”) pursuant to which any third Person provides support, maintenance or other services for IT Systems;
|
|
(vii)
|
any Primary Contract pursuant to which any material operational function of the Business is outsourced to or otherwise performed by a third Person;
|
|
(viii)
|
any Primary Contract pursuant to which one or more independent contractors provides services to the Business;
|
|
(ix)
|
any contract that relates to the acquisition or disposition of any business or operation included in the Business, or any other contract that includes an ongoing material indemnification obligation or guarantee of the Ceding Company in respect of the Business, but in either case only where any such contract contains any material obligation of Seller or any of its Affiliates that remains unperformed (other than any obligation to indemnify the buyer thereunder for breaches of provisions that have expired or which are not subject to any survival period); or
|
|
(x)
|
any other Primary Contract.
|
|
(i)
|
After the end of each calendar month that occurs between the date hereof and the Closing Date, Seller shall estimate in good faith the Adjusted Required Asset Value and the Accounting Value of the Specified Portfolio as of the end of such month and deliver to Purchaser a statement (each, a “Monthly Asset Value Statement”) specifying such Adjusted Required Asset Value and Accounting Value as of the end of such month, provided that no such Monthly Asset Value Statement shall be so prepared or delivered with respect to the month preceding the month in which the Closing occurs.
|
|
(ii)
|
If the Accounting Value of the Specified Portfolio set forth in a Monthly Asset Value Statement is less than the Adjusted Required Asset Value set forth in such Monthly Asset Value Statement, Seller shall (or shall cause the Ceding Company or AHLIC to), promptly following the delivery of such Monthly Asset Value Statement to Purchaser pursuant to
Section 5.11(a)(i)
, acquire or, subject to
Section 5.11(c)
below, designate for
|
|
(iii)
|
If the Accounting Value of the Specified Portfolio set forth in a Monthly Asset Value Statement is greater than the Adjusted Required Asset Value set forth in such Monthly Asset Value Statement, Seller may, at its option and in its sole discretion, select for removal from the Specified Portfolio cash or Investment Assets that have an aggregate Accounting Value equal to such excess as follows (clauses (A) and (B) below, the “Selection Waterfall”):
|
|
(A)
|
cash and cash equivalents in the Specified Portfolio will be selected first; and
|
|
(B)
|
otherwise, Investment Assets will be selected in an order of shortest stated maturity to longest stated maturity, determined in each case in good faith by Seller.
|
|
(iv)
|
Notwithstanding anything to the contrary in this Agreement, Seller may (and may cause the Ceding Company or AHLIC to) sell any Investment Asset in the Specified Portfolio if Seller determines in good faith that such Investment Asset has become, or is reasonably likely to become, impaired. In the event of any such sale of an impaired asset, Seller shall (or shall cause the Ceding Company or AHLIC to), as promptly as practicable following such sale (with a target of within one Business Day), acquire or designate for inclusion in the Specified Portfolio cash or replacement Investment Assets with an aggregate Fair Market Value equal to the Accounting Value of the Investment Asset sold in such sale, determined prior to any adjustment as a result of the impairment. For the avoidance of doubt, the Capital Gain or Loss Adjustment (as defined in clause (b) below) does not apply to sales of Investment Asset pursuant to this
Section 5.11(a)(iv)
, but the Reallocated Asset Value Adjustment (as defined in
Section 5.11(c)
below) does apply to any Reallocated Investment Asset that replaces such an Investment Asset.
|
|
(v)
|
Any changes to the Specified Portfolio contemplated by this
Section 5.11(a)
will be effected in accordance with Pre-Closing Investment Guidelines.
|
|
(i)
|
Between the date hereof and the Closing Date, Seller may, at its option and in its sole discretion, sell:
|
|
(A)
|
any bond in the Specified Portfolio that has an option adjusted duration of 3.00 years or less as of the close of business on the Business Day immediately prior to the date on which it is sold, determined in accordance with the OAD model provided by
|
|
(B)
|
an additional (x) 5% of the aggregate Specified Portfolio (where such percentage is determined by reference to the Accounting Value of the Specified Portfolio as of the Reference Date and sales are measured by Accounting Value of the sold Investment Assets as of the applicable sale dates) during the period between the Reference Date through December 31, 2017; and (y) if the Closing has not occurred on or prior to December 31, 2017, 1% of the Specified Portfolio (where such percentage is determined by reference to the Accounting Value of the Specified Portfolio as of the beginning of each applicable month and sales are measured by Accounting Value of the sold Investment Assets as of the applicable sale dates) during each calendar month, or portion thereof, that between December 31, 2017 and the Closing (this Section 5.11(b)(i) collectively, the “Discretionary Turnover Allowance”);
|
|
(ii)
|
On the date that any Investment Asset in the Specified Portfolio is sold pursuant to this Section 5.11(b) , the Adjusted Required Asset Value as of such date will, in addition to any adjustment to the Required Asset Value required under the Transaction Accounting Principles to account for any change in the interest maintenance reserve of the Ceding Company or AHLIC, as applicable, resulting from such sale, be adjusted as set forth below (each of the adjustments described in (A) and (B) below, a “Capital Gain or Loss Adjustment”):
|
|
(A)
|
if the sale of the Investment Asset generates a (statutory basis) capital gain (calculated as the excess, if any, of the FMV Ex-Accrued of such Investment Asset as of the applicable date of sale over the Book Value of such Investment Asset as of such date), the Adjusted Required Asset Value as of such date will be increased by the amount of such capital gain, less the amount of any interest maintenance reserve of the Ceding Company or AHLIC, as applicable, generated by the sale of such asset in accordance with the Transaction Accounting Principles; and
|
|
(B)
|
if the sale of the Investment Asset generates a (statutory basis) capital loss (calculated as the excess, if any, of the Book Value of such Investment Asset as of the applicable date of sale over the FMV Ex-Accrued of such Investment Asset as of such date), the
|
|
(iii)
|
In the event that Seller elects to sell any Investment Asset pursuant to this
Section 5.11(b)
, Seller shall, as promptly as reasonably practicable (with a target of within one Business Day) reinvest the gross proceeds it receives from such sale (less the amount of such gross proceeds that is attributable to accrued but unpaid interest on such Investment Asset) in the Specified Portfolio by either acquiring one or more new Investment Assets or, subject to
Section 5.11(c)
below, selecting for inclusion in the Specified Portfolio one or more Reallocated Investment Assets, in each case that have an aggregate FMV Ex-Accrued equal to the amount of such gross proceeds (less the amount of such gross proceeds that is attributable to accrued but unpaid interest on such Investment Asset).
|
|
(iv)
|
Any changes to the Specified Portfolio contemplated by this
Section 5.11(b)
will be effected in accordance with the Pre-Closing Investment Guidelines.
|
|
(i)
|
if the FMV Ex-Accrued of the Reallocated Investment Asset as of such date exceeds the Book Value of such Reallocated Investment Assets as of such date, the Adjusted Required Asset Value shall be decreased by the amount of such excess; and
|
|
(ii)
|
if the FMV Ex-Accrued of the Reallocated Investment Asset as of such date is less than the Book Value of such Reallocated Investment Asset as of such date, the Adjusted Required Asset Value shall be increased by the amount of such shortfall.
|
(i)
|
If the aggregate amount withheld from Transferred Employees’ compensation under the Seller FSA for 2018 exceeds the aggregate amount of reimbursements paid to Transferred Employees prior to the expiration of the Employee Lease Term under the Seller FSA for claims incurred in 2018, Seller shall transfer (or cause to be transferred) to Purchaser within 30 days after the expiration of the Employee Lease Term a cash payment equal to such excess, if any.
|
(ii)
|
If the aggregate amount of reimbursements paid to Transferred Employees prior to the expiration of the Employee Lease Term under the Seller FSA for claims incurred in 2018 exceeds the aggregate amount withheld from Transferred Employees’ compensation under the Seller FSA for 2018 prior to the expiration of the Employee Lease Term, Purchaser shall transfer (or cause to be transferred) to Seller within 30 days after the expiration of the Employee Lease Term a cash payment equal to such excess, if any.
|
(iii)
|
In each case, Purchaser shall assume and be solely responsible for all claims for reimbursement by Transferred Employees for 2018 that have not been paid in full as of the expiration of the Employee Lease Term, which claims shall be paid pursuant to and under the terms of the Purchaser FSA, and Purchaser shall indemnify and hold harmless Seller and its Affiliates from any and all claims by or with respect to Transferred Employees for reimbursement under the Seller FSA that have not been paid in full as of the expiration of the Employee Lease Term; provided, however, that the foregoing indemnification shall not apply to any claims that were adjudicated under the terms of the Seller FSA on or prior to the expiration of the Employee Lease Term. Purchaser agrees to cause the Purchaser FSA to honor through the end of the calendar year in which the Employee Lease Term expires the elections made by each Transferred Employee under the Seller FSA in respect of the flexible spending reimbursement accounts under the Purchaser FSA that are in effect immediately prior to the expiration of the Employee Lease Term, subject to each Transferred Employee’s ability to adjust such elections pursuant to the terms of the Purchaser FSA. For the avoidance of doubt, except as provided herein, (A) in no event shall Seller or any of its Affiliates have any liability or obligation under the Purchaser FSA, and (B) any Transferred Employee who elects coverage under a high deductible health plan may be ineligible to make continuing elections under the Purchaser health care FSA pursuant to the terms of such plans.
|
|
(i)
|
any inaccuracy in or breach of any representation or warranty of Seller made in this Agreement;
|
|
(ii)
|
any breach or non-fulfillment of any agreement or covenant of Seller under this Agreement; or
|
|
(iii)
|
any Excluded Liabilities including Excluded Taxes.
|
|
(i)
|
any inaccuracy in or breach of any representation or warranty of Purchaser made in this Agreement;
|
|
(ii)
|
any breach or non-fulfillment of any agreement or covenant of Purchaser under this Agreement;
|
|
(iii)
|
any Assumed Liability; or
|
|
(iv)
|
the operation of the Business from and after the Closing Date (except to the extent such Indemnifiable Loss is subject to indemnification by Seller of a Purchaser Indemnified Person pursuant to
Section 10.02(a)
).
|
|
(i)
|
“Indemnitee” means any Person entitled to indemnification under this Agreement;
|
|
(ii)
|
“Indemnitor” means any Person required to provide indemnification under this Agreement;
|
|
(iii)
|
“Indemnifiable Losses” means any and all damages, losses, Liabilities, obligations, costs and expenses (including reasonable attorneys’ and other professional fees and expenses); provided , that any Indemnity Payment (x) shall in no event include any amounts constituting consequential or punitive damages, or any damages calculated based on a loss of future revenue, income or profits, relating to the breach or alleged breach of this Agreement; provided , however , that notwithstanding the foregoing or anything to the contrary contained in this Agreement, Indemnifiable Losses shall include recoveries for lost profits (including diminution in value used by a trier of fact in determining lost profits) if and only if (A) such damages for lost profits are recoverable under the laws of the State of New York; (B) the Indemnitee satisfies all elements necessary for proof of
|
|
(iv)
|
“Indemnity Payment” means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement; and
|
|
(v)
|
“Third Party Claim” means any claim, action, suit, or proceeding made or brought by any Person that is not a party to this Agreement and not an Affiliate of such party to this Agreement.
|
(a)
|
If to Purchaser:
|
|
|
|
Hartford Life and Accident Insurance Company
|
|
c/o The Hartford Financial Services Group, Inc.
|
|
AETNA INC.
|
||
|
|
||
|
|
||
|
By:
|
/s/ Bjorn Thaler
|
|
|
|
Name:
|
Bjorn Thaler
|
|
|
Title:
|
Authorized Signatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY
|
||
|
|
||
|
|
||
|
By:
|
/s/ Michael Concannon
|
|
|
|
Name:
|
Michael Concannon
|
|
|
Title:
|
Authorized Signatory
|
(A)
|
the Eligible Employee’s Weekly Rate multiplied by thirteen (13) or,
|
(B)
|
the amount determined under the formula set forth in the immediately preceding Paragraph (ii), provided Severance Pay should not exceed the Eligible Employee’s Weekly Rate multiplied by twenty (20);
|
(1)
|
For Eligible Employees who are Non-exempt Employees:
|
(A)
|
the Eligible Employee’s Weekly Rate multiplied by fifty-two (52), plus
|
(B)
|
an amount equal to the Eligible Employee’s Weekly Rate multiplied by the number of Years of Service completed in excess of four (4) Years of Service by the Eligible Employee multiplied by two (2),
|
(A)
|
the Eligible Employee’s Weekly Rate multiplied by seventy-eight (78), plus
|
(B)
|
provided the Eligible Exempt Employee has completed at least five (5) Years of Service, an amount equal to the Eligible Employee’s Weekly Rate multiplied by the number of Years of Service completed in excess of four (4) Years of Service by the Eligible Employee multiplied by two (2),
|
a)
|
In General.
Except as provided in sub-paragraph (b) below, if for any reason the employment of an Eligible Employee with the Company and any subsidiary of the Company terminates during a PBRS Plan Year, the Eligible Employee will not receive a PBRS Award for that PBRS Plan Year.
|
b)
|
Death or Disability
. If an Eligible Employee dies or commences a long-term disability (as defined in the either Company's long-term disability plan or by the Social Security Administrator, as determined by the “Committee”) during a PBRS Plan Year, the Eligible Employee may receive a PBRS Award at the same time PBRS Awards are made to other Participants. Such PBRS Award will be pro-rated for the number of full months (a partial month will be counted as a full month) during which the Eligible Employee was an active employee based on a full calendar year and will (unless otherwise determined by the CEO or the Committee) be paid in cash based on the Eligible Earnings of the Eligible Employee as of the time of death or commencement of long-term disability. PBRS Awards with respect to deceased Eligible Employees shall be paid to the Eligible Employee’s Beneficiary.
|
Participant:
|
[
_____________
]
|
Employee ID:
|
[
_____________
]
|
Shares:
|
[
_____________
]
|
Option Price:
|
[
_____________
]
|
(i)
|
25% of the Option shall vest on the 1st anniversary of the Grant Date.
|
(ii)
|
25% of the Option shall vest on the 2nd anniversary of the Grant Date.
|
(iii)
|
25% of the Option shall vest on the 3rd anniversary of the Grant Date.
|
(iv)
|
25% of the Option shall vest on the 4th anniversary of the Grant Date.
|
1.
|
Pursuant and subject to the provisions of the 2017 Incentive Compensation Plan of CVS Health Corporation (the “
ICP
”), on the date set forth above (the “
Grant Date
”), CVS Health Corporation (the “
Company
”) has awarded and hereby evidences the Restricted Stock Unit (“
RSU
”) award (the “
Award
”) to the person named below (the “
Participant
”), subject to the terms and conditions set forth and incorporated in this Restricted Stock Unit agreement (the “
Agreement
”). The ICP is hereby made a part hereof and Participant agrees to be bound by all the provisions of the ICP. Capitalized terms not otherwise defined herein shall have the meaning assigned to such term(s) in the ICP. On the Grant Date specified above, the Fair Market Value (the “FMV”), which is the Closing Price of the Company’s common stock on the Grant Date, of each RSU equals
[
_____________
]
.
|
Participant:
|
[
_____________
]
|
Employee ID:
|
[
_____________
]
|
RSUs (#):
|
[
_____________
]
|
2.
|
Each RSU represents a right to a future payment of one share (“
Share
”) of Common Stock ($0.01 par value) of the Company, subject to required tax withholding.
|
3.
|
(a) To the extent dividends are paid on Shares while the RSUs remain outstanding, subject to Section 5(b), a cash amount equivalent to the dividends paid (such cash amount, a “Dividend Equivalent”) with respect to the number of Shares covered by the RSUs shall accrue. Any accrued Dividend Equivalent shall be payable only upon vesting of the underlying RSUs. To the extent that the underlying RSUs do not vest hereunder, any related accrued Dividend Equivalent shall be forfeited.
|
4.
|
Subject to the terms and conditions of the ICP and this Agreement and subject to Participant’s continued employment, Participant shall be entitled to receive (and the Company shall deliver to Participant) (a) the Shares on the Vesting Date set forth herein, or as soon as administratively practicable, but within 30 days thereafter, unless delivery of the Shares has been deferred in accordance with Section 5 below (the date of such delivery of the Shares being hereafter referred to as the “
Settlement Date
”) and (b) the Dividend Equivalents on the Vesting Date(s) set forth herein, or as soon as administratively practicable but within 30 days thereafter. The “
Vesting Date
,” except as otherwise provided in Section 7, shall be the fourth anniversary of the Grant Date.
|
5.
|
(a) In accordance with rules promulgated by the Management Planning and Development Committee of the Board of Directors (the “
Committee
”), Participant, to the extent eligible under the CVS Health Deferred Stock Compensation Plan, may elect to defer delivery of Shares in settlement of RSUs covered by this Agreement. Any such deferred delivery date elected by Participant shall become the Settlement Date for purposes of this RSU Agreement.
|
6.
|
On the Settlement Date the number of Shares to be delivered by the Company to Participant shall be reduced by the smallest number of Shares having a FMV at least equal to the dollar amount of federal, state and local tax withholding required to be withheld by the Company with respect to such RSUs on such date.
|
7.
|
(a) Except as provided in Paragraphs 7 (b) - (f) below, if, for any reason, Participant’s employment with the Company and any subsidiary of the Company terminates, all RSUs not then vested in accordance with Section 4 above shall be immediately forfeited.
|
8.
|
An RSU does not represent an equity interest in the Company and carries no voting rights. Participant shall have no rights of a shareholder with respect to the RSUs until the Shares have been delivered to Participant.
|
9.
|
Neither the execution and delivery hereof nor the granting of the Award evidenced hereby shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ Participant for any specific period.
|
10.
|
Any notice required to be given hereunder to the Company shall be in writing. If by regular mail, any required notice shall be addressed to: CVS Health Corporation, Attention: Senior Director, Executive Compensation, One CVS Drive, Woonsocket, RI 02895. If by electronic mail, any notice required shall be sent to: equityadministration@cvshealth.com, with “Retirement Notice” in the subject line. Any notice required to be given hereunder to Participant shall be addressed to such Participant at the address shown on the records of the Company, subject to the right of either party hereafter to designate, in writing, to the other, some other address.
|
11.
|
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the ICP shall be binding and conclusive on all persons. In the event of any inconsistency between the terms hereof and the provisions of the ICP, the ICP shall govern.
|
12.
|
The award of RSUs pursuant to this Agreement is expressly subject to and contingent upon the requirement that the Participant shall have fully executed and delivered to the Company the Restrictive Covenant Agreement, that may be required and provided by the Company. The applicable agreement containing the restrictive covenants that the Company may require in connection with this award is hereafter referred to as the “Restrictive Covenant Agreement”.
|
13.
|
By accepting this Award, Participant acknowledges that a copy of the ICP has been made available by the Company for Participant’s reference and agrees to be bound by the terms and conditions set forth in this Agreement and the ICP as in effect from time to time.
|
14.
|
By accepting this Award, Participant further acknowledges that the Federal securities laws and/or Company’s policies regarding trading in its securities may limit or restrict Participant’s right to trade Shares, including without limitation, sales of Shares acquired in connection with RSUs. Participant agrees to comply with such Federal securities law requirements and Company policies, as such laws and policies may be amended from time to time.
|
15.
|
The Company intends that this Agreement not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and that to the extent any provisions of this Agreement do not comply with Code Section 409A the Company will make such changes in order to comply with Code Section 409A to the extent it considers reasonable. In all events, the provisions of CVS Health Corporation’s 409A Universal Definitions Document are hereby incorporated by reference and to the extent required to avoid a violation of the applicable rules under Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any amounts subject to Section 409A of the Code shall be delayed until the first business day of the seventh month immediately following the employment termination date. For purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the “termination of employment” (and corollary terms) shall be construed to refer to “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)). Notwithstanding the foregoing, the Company makes no representations as to the tax treatment or consequences of any payment made hereunder, and Participant, by accepting this Award, acknowledges that Participant shall be solely responsible for same.
|
16.
|
The Award subject to this RSU Agreement under the ICP shall be subject to the terms of the Company’s Recoupment Policy as it exists from time to time, which may require the Participant to immediately repay
|
17.
|
This Agreement shall be governed by the laws of Delaware, without giving effect to its choice of law provisions.
|
18.
|
This Agreement shall be fully effective only upon the Participant’s formal acceptance of the terms and conditions set forth above as required by the Company.
|
1.
|
Pursuant and subject to the provisions of the 2017 Incentive Compensation Plan of CVS Health Corporation (the “
ICP
”), on the date set forth above (the “
Grant Date
”), the CVS Health Corporation (the “
Company
”) has awarded and hereby evidences the Performance-Based Restricted Stock (“
PBRS
”) unit award (the “
Award
”) to the person named below (the “
Participant
”), subject to the terms and conditions set forth and incorporated in this PBRS Agreement (the “
PBRS Agreement
”), the Restricted Stock Units (“
RSUs
”) set forth below. The ICP is hereby made a part hereof and Participant agrees to be bound by all the provisions of the ICP. Capitalized terms not otherwise defined herein shall have the meaning assigned to such term(s) in the ICP. On the Grant Date specified above, the Fair Market Value (the "
FMV
") of a share of Stock equals
[
_____________
]
, which is the closing price on such date.
|
Participant
|
[
_____________
]
|
Employee Number
|
[
_____________
]
|
RSUs (#)
|
[
_____________
]
|
2.
|
Each RSU represents a right to a future payment of one share (“
Share
”) of Common Stock ($0.01 par value) of the Company, subject to required tax withholding.
|
3.
|
(a) To the extent dividends are paid on Shares while the RSUs remain outstanding, subject to Paragraph 5(b), a cash amount equivalent to the dividends paid (such cash amount, a “Dividend Equivalent”) with respect to the number of Shares covered by the RSUs shall accrue. Any accrued Dividend Equivalent shall be payable only upon vesting of the underlying RSUs. To the extent that the underlying RSUs do not vest hereunder, any related accrued Dividend Equivalent shall be forfeited.
|
4.
|
Subject to the terms and conditions of the ICP and this PBRS Agreement, and subject to Participant’s continued employment, Participant shall be entitled to receive (and the Company shall deliver to Participant) (a) the Shares on the Vesting Date(s) set forth herein, or as soon as administratively practicable thereafter, but within 30 days, thereafter unless delivery of the Shares has been deferred in accordance with Paragraph 5 below (the date of such delivery of the Shares being hereafter referred to as the “Settlement Date”) and (b) the Dividend Equivalents on the Vesting Date(s) set forth herein, or as soon as administratively practicable but within 30 days thereafter. Each “Vesting Date,” except as otherwise provided in Paragraph 7, shall be in accordance with the schedule set forth below:
|
(a)
|
one-third (1/3) of the RSUs on the first anniversary of the Grant Date;
|
(a)
|
one-third (1/3) of the RSUs on the second anniversary of the Grant Date; and
|
(b)
|
one-third (1/3) of the RSUs on the third anniversary of the Grant Date.
|
5.
|
(a) In accordance with rules promulgated by the Management Planning and Development Committee of the Board of Directors (the “
Committee
”), Participant, to the extent eligible under the CVS Health Deferred Stock Compensation Plan, may elect to defer delivery of Shares in settlement of RSUs covered by this PBRS Agreement. Any such deferred delivery date elected by Participant shall become the Settlement Date for purposes of this PBRS Agreement.
|
6.
|
On the Settlement Date the number of Shares to be delivered by the Company to Participant shall be reduced by the smallest number of Shares having a FMV at least equal to the dollar amount of Federal, state and local tax withholding required to be withheld by the Company with respect to such RSUs on such date.
|
7.
|
(a) Except as provided in Paragraphs 7 (b) - (f) below, if, for any reason, Participant’s employment with the Company and any subsidiary of the Company terminates, all RSUs not then vested in accordance with Paragraph 4 above, shall be immediately forfeited.
|
8.
|
An RSU does not represent an equity interest in the Company and carries no voting rights. Participant shall have no rights of a shareholder with respect to the RSUs until the Shares have been delivered to Participant.
|
9.
|
Neither the execution and delivery hereof nor the granting of the award evidenced hereby shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ Participant for any specific period.
|
10.
|
Any notice required to be given hereunder to the Company shall be in writing. If by regular mail, any required notice shall be addressed to: CVS Health Corporation, Attention: Senior Director, Executive Compensation, One CVS Drive, Woonsocket, RI 02895. If by electronic mail, any notice required shall be sent to: equityadministration@cvshealth.com, with “Retirement Notice” in the subject line. Any notice required to be given hereunder to Participant shall be addressed to such Participant at the address shown on the records of the Company, subject to the right of either party hereafter to designate, in writing, to the other, some other address.
|
11.
|
All decisions and interpretations made by the Board of Directors or the Committee with regard to any question arising hereunder or under the ICP shall be binding and conclusive on all persons. In the event of any inconsistency between the terms hereof and the provisions of the ICP, the ICP shall govern.
|
12.
|
By accepting this Award, Participant acknowledges that a copy of the ICP has been made available for the Participant’s reference, and agrees to be bound by the terms and conditions set forth in this Agreement and the ICP as in effect from time to time.
|
13.
|
By accepting this Award, Participant further acknowledges that the Federal securities laws and/or Company’s policies regarding trading in its securities may limit or restrict Participant’s right to buy or sell Shares, including without limitation, sales of Shares acquired in connection with RSUs. Participant agrees to comply with such Federal securities law requirements and Company policies as such laws and policies may be amended from time to time.
|
14.
|
The company intends that this Agreement not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and the regulations and guidance thereunder (collectively, “Section 409A”) and that to the extent any provisions of this PBRS Agreement do not comply with Section 409A the Company will make such changes as it deems reasonable in order to comply with Section 409A. In all events, the provisions of CVS Health Corporation’s 409A Universal Definitions Document are hereby incorporated by reference and, notwithstanding any other provision of the Plan or this PBRS Agreement to the contrary, to the extent required to avoid a violation of the applicable rules under Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any amounts subject to Section 409A shall be delayed until the first business day of the seventh month immediately following the date of termination of employment. For purposes of any provision of this PBRS Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the “termination of employment” (and corollary terms) shall be construed to refer to “separation from service” as determined under Section 409A.
|
15.
|
The Award subject to this PBRS Agreement under the Plan and ICP shall be subject to the terms of the Company’s Recoupment Policy as it exists from time to time, which may require the Participant to immediately repay to the Company the value of any pre-tax economic benefit that he or she may derive from the Award. By accepting this Award, Participant acknowledges that the Company’s Recoupment Policy has been made available for Participant’s reference.
|
16.
|
This Agreement shall be governed by the laws of Delaware, without giving effect to its choice of law provisions.
|
17.
|
This Agreement shall be fully effective only upon the Participant’s formal acceptance of the terms and conditions set forth above as required by the Company.
|
(C)
|
Additional Transactions in Participant Accounts
.
|
(i)
|
Each Participant Purchased RSU and Company Matching RSU represents a right to a future payment of one share of Stock, subject to applicable tax withholding.
|
(ii)
|
To the extent that dividends are declared and paid on shares of Stock while the Participant Purchased RSUs and Company Matching RSUs remain outstanding and prior to a Settlement Date (as defined below), the Company shall credit to Participant’s Purchased RSU account and Company Matching RSU account (as applicable) an additional number of Participant Purchased RSUs and Company Matching RSUs calculated by multiplying (a) the amount of dividend per share of Stock approved by the Company’s Board of Directors by (b) the number of Participant Purchased RSUs and Company Matching RSUs held by Participant on the dividend record date, and dividing the product by (c) the FMV of a share of Stock on such dividend payment date.
|
(iii)
|
Provided, however, that if such dividend is paid prior to the Vesting Date of Participant Purchased RSUs and/or the Company Matching RSUs, as set forth in Section I (D) below, Participant shall not be entitled to any
|
(iv)
|
Participant hereby agrees that, prior to the Settlement Date, the Company may withhold from the dividend equivalent amounts described to in Section I(C)(ii) amounts sufficient to satisfy the applicable tax withholding in respect of such dividend equivalent payments, as applicable.
|
(i)
|
A “Settlement Date” shall mean the date shares of Stock are delivered to Participant pursuant to the PEP and this Agreement.
|
(ii)
|
Within
fifteen (15) days following the earliest of the fifth (5
th
) anniversary of the Grant Date, Participant’s death, or termination of employment without Cause within the two-year period following a Change in Control, Participant shall be entitled to receive and the Company shall deliver to Participant the total number of shares of Stock (giving effect to Sections I(C)(ii) and I(C)(iv)) underlying the Company Matching RSUs on the Vesting Date set forth herein, or as soon as administratively practicable, but within 30 days thereafter, unless delivery of the Shares has been deferred in accordance with Section I(E)(iii) below (the date of such delivery of the Shares being hereafter referred to as the “
Settlement Date
”). Notwithstanding the foregoing, no shares of Stock shall be delivered upon termination of employment unless such termination of employment is considered a “separation from service” (within the meaning given of Treasury Regulation §1.409A-1(h) or successor guidance thereto).
|
(iii)
|
Subject to the rules promulgated by the Committee, the terms of the CVS Health Deferred Stock Compensation Plan and Section 409A, Participant may elect to defer settlement of Participant Purchased RSUs or Company Matching RSUs covered by this Agreement.
|
(i)
|
Prior to its expiration or termination, and except as otherwise provided herein, the Company Matching Option shall vest and may be exercised by Participant, provided Participant has maintained continuous employment with the Company or a subsidiary of the Company from the Grant Date until the applicable vesting date, within the following time limitations:
|
a.
|
On or after three (3) years from the Grant Date, the Company Matching Option shall be vested and may be exercised as to one-third (1/3) of the shares of Stock subject to the Company Matching Option;
|
b.
|
On or after four (4) years from the Grant Date, the Company Matching Option shall be vested and may be exercised as to an aggregate of two-thirds (2/3) of the shares of Stock subject to the Company Matching Option; and
|
c.
|
On or after five (5) years from the Grant Date, the Company Matching Option shall be vested and may be exercised as to all of the shares of Stock subject to the Company Matching Option.
|
(ii)
|
The Company Matching Option, subject to the provisions of the ICP, shall be exercised by submitting a request to exercise to the Company’s stock option administrator, in accordance with the Company’s current exercise policies and procedures, specifying the number of shares of Stock to be purchased, which number may not be less than one hundred (100) shares of Stock (unless the number of shares of Stock purchased is the total balance which is then exercisable). An exercise by Participant of all or part of this Company
|
(A)
|
|
(i)
|
If Participant’s employment with the Company and its subsidiaries terminates within 24 months of the grant date as a result of the Participant’s voluntary termination of employment or involuntary termination by the Company or any subsidiary for Cause, the Participant Purchased RSUs shall be immediately forfeited as of the termination date
.
|
(ii)
|
Except as provided in Section III (B)-(F) below, if, for any reason, Participant’s employment with the Company and any subsidiary of the Company terminates, all Company Matching RSUs and the Company Matching Option to the extent not vested as of the termination date in accordance with Sections I(D) and II(C)(i) above shall be immediately forfeited as of the termination date. To the extent vested and unexercised as of the termination date, the Company Matching Option shall be exercisable on or before the ninetieth (90
th
) day following the termination date, as long as no government regulations or rules are violated by such exercise period; provided, however, that the Company Matching Option shall not be exercisable beyond its original term.
|
(i)
|
the total number of Company Matching RSUs vested as of Participant’s employment termination date (which is the last day that the Participant is employed by the Company or any subsidiary of the Company) shall be equal to the number of Company Matching RSUs granted on the Grant Date multiplied by the following fraction: (A) the numerator shall be the whole number of months elapsed since the Grant Date and (B) the denominator shall be sixty (60). For purposes of this calculation, the number of months in the numerator in sub-section (A) above shall include any partial month in which Participant has worked. For example, if the time elapsed between the Grant Date and the Separation Date is eight months and five days, the numerator in sub-section (A) above shall be nine. Participant will be responsible for any applicable withholding taxes that may become due as of Participant’s employment termination date. Any Shares represented by RSUs that vest under this section shall settle on the Settlement Date that would have applied under the original schedule set forth in Section I(D) of this PEP Agreement.
|
(ii)
|
the total number of Company Matching Option vested as of Participant’s employment termination date with respect to the number of shares of Stock subject to the Company Matching Options, shall be equal to the number of Company Matching Options granted on the Grant Date multiplied by the following fraction: (A) the numerator shall be the whole number of months elapsed since the Grant Date and (B) the denominator shall be sixty (60). For purposes of this calculation, the number of months in the numerator in sub-section (A) above shall include any partial month in which Participant has worked. For example, if the time elapsed
|
(iii)
|
the vested portion of the Company Matching Option shall be exercisable during the twelve (12) month period following Participant’s employment termination date, as long as no government regulations or rules are violated by such accelerated vesting or exercise period; provided, however, that the Company Matching Option shall not be exercisable beyond its original term.
|
(i)
|
In the event Participant’s termination of employment qualifies as a Qualified Retirement, Participant may exercise the Company Matching Option to the extent vested as of Participant’s retirement date at any time within two (2) years after Participant’s retirement date, but not beyond the original term of the Company Matching Option. To the extent unvested as of the retirement date, the Company Matching Option shall be forfeited. The Committee shall have the authority in its sole discretion to make any interpretations, determinations, and/or take any administrative actions with respect to whether Participant has experienced a Qualified Retirement.
|
(ii)
|
Company Matching RSUs that are unvested as of the Participant’s retirement date are forfeited as of the retirement date.
|
(iii)
|
In the event Participant’s termination of employment qualifies as a Qualified Retirement and Participant also enters into a severance agreement with the Company, each portion of a Participant’s Company Matching RSU or Company Matching Option under this Award shall be entitled to the more favorable treatment explicitly applicable to such portion of the Participant’s Company Matching RSU or Company Matching Option under the provisions of Section XIII(F) of the PEP with respect to the vesting and settlement of the Company Matching RSUs and the Company Matching Option.
|
(a)
|
“Affiliate" means an entity at least a majority of the total voting power of the then-outstanding voting securities of which is held, directly or indirectly, by the Company and/or one or more other Affiliates.
|
(b)
|
"Board" means the Board of Directors of Aetna Inc.
|
|
|
(c)
|
"Change in Control" means the happening of any of the following:
|
|
(i)
|
When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities;
|
|
(ii)
|
When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof,
provided
that
a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (ii); or
|
|
(iii)
|
The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.
|
|
|
|
|
|
Notwithstanding the foregoing, in no event shall a “Change in Control” be deemed to have occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to Grantee, if Grantee is part of a “group,” within the meaning of Section 13(d)(3) of the Exchange Act as in effect on the effective date, which consummates the Change in Control transaction. In addition, for purposes of the definition of “Change in Control” a person engaged in business as an underwriter of securities shall not be deemed to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition.
|
(d)
|
"Committee" means the Board's Committee on Compensation and Organization or any successor thereto.
|
(e)
|
"Common Stock" means the Company's Common Shares, $.01 par value per share.
|
(f)
|
"Company" means Aetna Inc.
|
(g)
|
"Effective Date" means the date of grant of this award of Market Stock Units.
|
(h)
|
“Fair Market Value" means the closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be determined, or, if no shares were traded on such date, on the next day on which the Common Stock is traded.
|
(i)
|
“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or similar event.
|
(j)
|
"Grantee" means the person to whom this award has been granted.
|
(k)
|
“Holding Company” means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the voting stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding voting stock.
|
(l)
|
"Long Term Disability" means long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies.
|
(m)
|
“Net Shares” means the number of shares of Common Stock which will be deposited in a brokerage account in the Grantee’s name at the Company’s designated broker after shares have been withheld to satisfy applicable tax and withholding requirements upon vesting of the Market Stock Units.
|
(n)
|
“Performance Period” means the [ ] month period following the Effective Date.
|
(o)
|
“Market Stock Units” means the number of units awarded that will convert to a number of shares of Common Stock based on the operation of Article II of this Agreement, or such other amount as may result by operation of Article III of this Agreement.
|
(p)
|
“Plan” means the Aetna Inc. 2010 Stock Incentive Plan.
|
(q)
|
"Retirement" means the termination of employment of a Grantee from active service with the Company, a Subsidiary or Affiliate provided the Grantee’s age and completed years of service total 65 or more points at termination of employment.
|
(r)
|
“Section 162(m)” means Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.
|
(s)
|
“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.
|
(t)
|
“Shares of Stock” or “Stock” means the Common Stock.
|
(u)
|
"Subsidiary" means an entity of which, at the time such subsidiary status is to be determined, at least 50% of the total combined voting power of all classes of stock of such entity is held by the Company and/or one or more other subsidiaries.
|
(v)
|
"Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who shall acquire the right to the Market Stock Units by bequest or inheritance or by reason of the death of the Grantee.
|
(w)
|
“Vest Date” means the date on which this award of Market Stock Units shall vest in accordance with the terms of this Agreement and in the Notice of Market Stock Unit Grant.
|
(x)
|
“Vest Date Fair Market Value” means the average closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares for the 29 trading days prior to the Vest Date and the Vest Date, or, if no shares were traded on such Vest Date, for the 30 trading days prior to the Vest Date.
|
(a)
|
Except as provided in (c) below, if, during the Performance Period, Grantee shall cease to be employed by the Company, its Subsidiaries or Affiliates, for reason of death, Long-term Disability, Retirement or involuntary termination of employment by the Company, the portion of the Market Stock Units that may vest on the Vest Date, if any, shall be calculated in accordance with the following formula: (i) the number of completed months employed commencing on the first day of the Performance Period divided by the number of months in the Performance Period; multiplied by (ii) the number of Market Stock Units that otherwise would have vested under the term of this Agreement had the Grantee remained actively employed through the Vest Date.
|
(b)
|
Except as provided in (a) above, any Market Stock Unit not vested as of the date Grantee terminates employment shall be forfeited at the time of cessation of employment; provided, however, that if Grantee’s employment is terminated by the Company other than for cause and Grantee has not previously, or does not subsequently, vest to any portion of the Market Stock Unit in accordance with its terms, then upon the forfeiture of the entire Market Stock Unit, the Company will pay Grantee an amount equal to the value of a single share of Common Stock, whether or not the forfeited Market Stock Unit related to more than a single share of Common Stock, calculated as of the cessation of employment, if requested by Grantee, within 30 days of such cessation of employment.
|
|
|
|
|
(c)
|
No Market Stock Unit will vest after the Company has terminated the employment of the Grantee for cause, unless the Committee, in its sole discretion, deems a payment to be warranted under the particular circumstances. In addition, the Market Stock Units will not vest if Grantee has willfully engaged in gross misconduct or other serious impropriety which the Company determines is likely to be damaging or detrimental to the Company, any Subsidiary or Affiliate.
|
|
|
|
|
(d)
|
Employment for purposes of determining the vesting rights of the Grantee and the expiration of the grant under this Article V shall mean continuous active full-time salaried employment with the Company, a Subsidiary or an Affiliate, except that the period during which the Grantee is on vacation, sick leave, or other pre-approved leave of absence (provided there is no actual termination of employment), shall not interrupt the continuous employment of the Grantee. Employment shall also include service with Aetna Foundation, Inc. Notwithstanding any period during which Grantee receives salary continuation or severance shall
not
be considered as part of the continuous employment of the Grantee.
|
(a)
|
As consideration for this grant of Market Stock Units, without prior written consent of the Company:
|
|
(i)
|
Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) use or disclose to any third person, whether during or subsequent to Grantee’s employment, any trade secrets, confidential information and proprietary materials, which may include, but are not limited to, the following categories of information and materials: customer lists and identities; provider lists and identities; employee lists and identities; product development and related information; marketing plans and related
|
|
|
information; sales plans and related information; premium or other pricing information; operating policies and manuals; research; payment rates; methodologies; procedures; contractual forms; business plans; financial records; computer programs; database; or other financial, commercial, business or technical information related to the Company or any Subsidiary or Affiliate unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement; provided, however, that this limitation shall not apply to any such use or disclosure made while Grantee is employed by the Company, any Subsidiary or Affiliate if such disclosure occurred in connection with the performance of Grantee’s job as an employee of the Company, any Subsidiary or Affiliate;
|
|
(ii)
|
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee’s termination of Employment, directly or indirectly induce or attempt to induce any employee to be employed or perform services elsewhere;
|
|
|
|
|
(iii)
|
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, supplier or health care provider of the Company or any Subsidiary to cease or curtail providing services to the Company or any Subsidiary; and
|
|
(iv)
|
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee’s termination of Employment, directly or indirectly solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however, that this limitation shall only apply to any product or service which is in competition with a product or service of the Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved.
|
|
|
|
|
In addition:
|
|
|
|
|
|
(v)
|
Following the termination of Grantee’s Employment, Grantee shall provide assistance to and shall cooperate with the Company or a Subsidiary or Affiliate, upon its reasonable request and without additional compensation, with respect to matters within the scope of Grantee’s duties and responsibilities during Employment, provided that any reasonable out-of-pocket expenses Grantee incurs in connection with any assistance Grantee has been requested to provide under this provision for items including, but not limited to, transportation, meals, lodging and telephone, shall be reimbursed by the Company. The Company agrees and acknowledges that it shall, to the maximum extent possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or Affiliate to coordinate, any such request with Grantee’s other commitments and responsibilities to minimize the degree to which such request interferes with such commitments and responsibilities; and
|
|
|
|
|
(vi)
|
Grantee shall promptly notify the Company’s General Counsel if Grantee is contacted by a regulatory or self-regulatory agency with respect to matters pertaining to the Company or by an
|
|
|
attorney or other individual who informs the Grantee that he/she has filed, intends to file, or is considering filing a claim or complaint against the Company.
|
|
(vii)
|
Grantee acknowledges that all original works of authorship that are created by Grantee (solely or jointly with others) within the scope of Grantee’s employment which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101). Grantee further acknowledges that while employed by the Company, Grantee may develop ideas, inventions, discoveries, innovations, procedures, methods, know-how or other works which relate to the Company’s current or are reasonably expected to relate to the Company’s future business that may be patentable or subject to trade secret protection. Grantee agrees that all such works of authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how and other works shall belong exclusively to the Company, and the Grantee hereby assigns all right, title, and interest therein to the Company.
To the extent any of the foregoing works may be patentable, Grantee agrees that the Company may file and prosecute any application for patents for such works and that the Grantee will, on request, execute assignments to the Company relating to (and take all such further steps as may be reasonably necessary to perfect the Company’s sole and exclusive ownership of) any such application and any patents resulting therefrom.
|
(b)
|
If any provision of Article VI (a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.
|
(c)
|
Grantee acknowledges that a material part of the inducement for the Company to grant the Market Stock Units is Grantee’s covenants set forth in Article VI (a) and that the covenants and obligations of Grantee with respect to nondisclosure, non-solicitation and cooperation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, Grantee shall not be entitled to vest in the Market Stock or be entitled to retain any income therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Article VI. The Company also shall be entitled to recover any attorneys’ fees, costs, and expenses it incurs in connection with any judicial proceeding arising out of Grantee’s breach of this Agreement. The remedies in the preceding sentences are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine.
|
(d)
|
Employment Dispute Arbitration Program -
Mandatory Binding Arbitration of Employment Disputes.
|
|
(i)
|
Except as otherwise specified in this Agreement, the Grantee and the Company agree that all employment-related legal disputes between them will be submitted to and resolved by binding arbitration, and neither the Grantee nor the Company will file or participate as an individual party or member of a class in a lawsuit in any court against the other with respect to such matters. This shall apply to claims brought on or after the date the Grantee accepts this Agreement, even if the facts and circumstances relating to the claim occurred prior to that date and regardless of whether the Grantee or the Company previously filed a complaint/charge with a government agency concerning the claim.
|
|
For purposes of Article VI (d) of this Agreement, “the Company” includes Aetna Inc., its Subsidiaries and Affiliates, their predecessors, successors and assigns, and those acting as representatives or agents of those entities. THE GRANTEE UNDERSTANDS THAT, WITH RESPECT TO CLAIMS SUBJECT TO THE ARBITRATION REQUIREMENT, ARBITRATION REPLACES THE RIGHT OF THE GRANTEE AND THE COMPANY TO SUE OR PARTICIPATE IN A LAWSUIT. THE GRANTEE ALSO UNDERSTANDS THAT IN ARBITRATION, A DISPUTE IS RESOLVED BY AN ARBITRATOR INSTEAD OF A JUDGE OR JURY, AND THE DECISION OF THE ARBITRATOR IS FINAL AND BINDING.
|
|
(ii)
|
THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE SIGNING THIS AGREEMENT.
|
|
(iii)
|
Article VI (d) of this Agreement does not apply to workers’ compensation claims, unemployment compensation claims, and claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) for employee benefits. A dispute as to whether Article VI (d) of this Agreement applies must be submitted to the binding arbitration process set forth in this Agreement.
|
|
(iv)
|
The Grantee and/or the Company may seek emergency or temporary injunctive relief from a court (including with respect to claims arising out of Article VI (a) in accordance with applicable law). However, except as provided in Article VI (c) of this Agreement, after the court has issued a ruling concerning the emergency or temporary injunctive relief, the Grantee and the Company shall be required to submit the dispute to binding arbitration pursuant to this Agreement.
|
|
(v)
|
Unless otherwise agreed, the arbitration will be administered by the American Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Rules”), as modified in this Agreement, in effect at the time the request for arbitration is filed. The AAA’s Rules are available on the AAA’s website at
www.adr.org.
THE GRANTEE ACKNOWLEDGES THAT THE COMPANY HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.
|
|
(vi)
|
If the Company initiates a request for arbitration, the Company will pay all of the administrative fees and costs charged by the AAA, including the arbitrator’s compensation and charges for hearing room rentals, etc. If the Grantee initiates a request for arbitration or submits a counterclaim to the Company’s request for arbitration, the Grantee shall be required to contribute One Hundred Dollars ($100.00) to those administrative fees and costs, payable to the AAA at the time the Grantee's request for arbitration or counterclaim is submitted. The Company may increase the contribution amount in the future without amending this Agreement, but not to exceed the maximum permitted under the AAA rules then in effect. In all cases, the Grantee and the Company shall be responsible for payment of any fees assessed by the arbitrator as a result of that party’s delay, request for postponement, failure to comply with the arbitrator’s rulings and for other similar reasons.
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(vii)
|
The Grantee and the Company may choose to be represented by legal counsel in the arbitration process and shall be responsible for their own legal fees, expenses and costs. However, the
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|
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arbitrator shall have the same authority as a court to order the Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs, in accordance with applicable law.
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(viii)
|
Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee and the Company from a list of qualified neutrals furnished by the AAA. If the Grantee and the Company cannot agree on an arbitrator, one will be selected by the AAA.
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(ix)
|
Unless otherwise agreed, the arbitration hearing will take place in the city where the Grantee works or last worked for the Company. If the Grantee and the Company disagree as to the proper locale, the AAA will decide.
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(x)
|
The Grantee and the Company shall be entitled to conduct limited pre-hearing discovery. Each may take the deposition of one person and anyone designated by the other as an expert witness. The party taking the deposition shall be responsible for all associated costs, such as the cost of a court reporter and the cost of an original transcript. Each party also has the right to submit one set of ten written questions (including subparts) to the other party, which must be answered under oath, and to request and obtain all documents on which the other party relies in support of its answers to the written questions. Additional discovery may be permitted by the arbitrator upon a showing that it is necessary for that party to have a fair opportunity to present a claim or defense.
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(xi)
|
The arbitrator shall apply the same substantive law that would apply if the matter were heard by a court and shall have the authority to order the same remedies (but no others) as would be available in a court proceeding. The time limits for requesting arbitration or submitting a counterclaim and the administrative prerequisites for filing an arbitration claim or counterclaim are the same as they would be in a court proceeding. The arbitrator shall consider and decide any dispositive motions (motions seeking a decision on some or all of the claims or counterclaims without an arbitration hearing) filed by any party.
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(xii)
|
All proceedings, including the arbitration hearing and decision, are private and confidential, unless otherwise required by law. Arbitration decisions may not be published or publicized without the consent of both the Grantee and the Company.
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(xiii)
|
Unless otherwise agreed, the arbitrator’s decision will be in writing with a brief summary of the arbitrator’s opinion.
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(xiv)
|
The arbitrator’s decision is final and binding on the Grantee and the Company. After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order of judgment from a court and may obtain a court order enforcing the decision. The arbitrator’s decision may be appealed to the courts only under the limited circumstances provided by law.
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(xv)
|
If the Grantee previously signed an agreement, including but not limited to an employment agreement, containing arbitration provisions, those provisions are superseded by the arbitration provisions of this Agreement.
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(xvi)
|
If any provision of Article VI (d) is found to be void or otherwise unenforceable, in whole or in part, this shall not affect the validity of the remainder of Article VI (d) and the remainder of the Agreement. All other provisions shall remain in full force and effect.
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(e)
|
Except as provided in connection with mandatory binding arbitration of employment disputes, Grantee hereby submits to the exclusive jurisdiction of the courts of the State of Connecticut and the United States District Court for the District of Connecticut with respect to any action relating to this Agreement, and agrees that (i) the sole and exclusive appropriate venue for any suit or proceeding relating to this Agreement shall be in such court, and (ii) hereby waives any and all objections and defenses based on forum, venue or personal or subject matter jurisdiction as they may relate to a suit or proceeding brought before such court in accordance with the Agreement.
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(a)
|
Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary or Affiliate to terminate the Grantee’s employment at any time. Neither the execution and delivery hereof nor the granting of the Award shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or any of its Subsidiaries to employ or continue the employment of the Grantee for any period.
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(b)
|
Until the Market Stock Units have become vested, Grantee shall not have any rights as a stockholder (including the right to payment of dividends) by virtue of this grant of Market Stock Units.
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(c)
|
During the Performance Period, the Market Stock Units shall be nontransferable and non-assignable except by will or the laws of descent and distribution.
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(d)
|
The award, when vested, will be settled on a net basis. Prior to issuing any Common Shares, the Company will withhold an amount sufficient to satisfy federal, state, local, social security and Medicare withholding tax requirements relating to award. Any social security calculation or other adjustments discovered after net share payment will be settled in cash, not in Shares of Common Stock. Vesting will result in taxable compensation reportable on the Grantee’s W-2 in year of vesting.
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(e)
|
The Company may from time to time adopt stock ownership requirements applicable to Grantees who are senior managers of the Company. In connection with and for the purpose of implementing those ownership requirements, the Company may adopt certain restrictions on the ability of a Grantee to sell shares issued under this Agreement when such ownership requirements have not been satisfied. Any such restriction on sale will be communicated generally to affected Grantees and the restriction may be modified by the Company from time to time, at its discretion. Neither the Company nor its Board of Directors shall have any obligation or liability to a Grantee in connection with any such restriction.
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(f)
|
This Market Stock Unit is an unfunded obligation of the Company and nothing in this Agreement shall be construed to create any claim against particular assets or require the Company to segregate or otherwise set aside any assets or create any fund to meet its obligations hereunder.
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(g)
|
Anything herein to the contrary notwithstanding, a Grantee whose Market Stock Units have been forfeited as a result of termination of employment due to U.S. Military Service and who is later re-employed (in a full-time active status) after discharge within the time period set in 38 U.S.C. Section 4312 will be eligible to have the forfeited Market Stock Units reinstated as follows: (i) if such Grantee is re-employed during the Performance Period, all forfeited Market Stock Units shall be reinstated; or (ii) if such Grantee is re-employed after the Performance Period, a cash payment will be made to the Grantee, minus applicable taxes, for the value of the forfeited Market Stock Units on the Vest Date pursuant to procedures established by the Company for this purpose.
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(h)
|
It is the intention of the Company and Grantee that this Agreement not result in unfavorable tax consequences to Grantee under Section 409A and the Agreement shall be interpreted as to so comply. Notwithstanding anything to the contrary herein, the Company and Grantee agree to the provisions set forth below in order to comply with the requirements of Section 409A.
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(i)
|
If Grantee is a “specified employee” (within the meaning of Section 409A) with respect to the Company, any non-qualified deferred compensation otherwise payable to or in respect of Grantee in connection with Grantee’s termination of employment shall be delayed until the earliest date upon which such amounts may be paid without being subject to taxation under Section 409A. Any amount, the payment or benefit of which is delayed by application of the preceding sentence, shall be paid as soon as possible following the expiration of such period.
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(ii)
|
Unless deferred pursuant to this agreement, all payments shall be paid to Grantee, to the extent earned, in no event later than the last day of the “applicable 2 ½ month period,” as such term is defined in Treasury Regulation Section 1.409A-1(b)(4)(i)(A) with respect to such payment’s treatment as a “short-term deferral” for purposes of Section 409A.
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(iii)
|
The Company and Grantee agree to cooperate in good faith in an effort to comply with Section 409A. Under no circumstances shall the Company be responsible for any taxes, penalties, interest or other losses or expenses incurred by the Grantee due to any failure to comply with Section 409A.
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(i)
|
This Agreement is subject to the 2010 Stock Incentive Plan heretofore adopted by the Company and approved by its shareholders. The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
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(j)
|
At such times and upon such terms and conditions as the Company shall determine, the Company may permit eligible Grantees to elect to defer the distribution of an Award otherwise payable to the Grantee under this Agreement until termination of the Grantee’s Employment or such other date Company shall permit.
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(k)
|
This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to its choice of law provisions.
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(a)
|
“Affiliate" means an entity at least a majority of the total voting power of the then-outstanding voting securities of which is held, directly or indirectly, by the Company and/or one or more other Affiliates.
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(b)
|
"Board" means the Board of Directors of Aetna Inc.
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(i)
|
When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities;
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(ii)
|
When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof,
provided
that
a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (ii); or
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(iii)
|
The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.
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(d)
|
"Committee" means the Board's Committee on Compensation and Organization or any successor thereto.
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(e)
|
"Common Stock" means the Company's Common Shares, $.01 par value per share.
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(f)
|
"Company" means Aetna Inc.
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(g)
|
"Effective Date" means the date of grant of this award of Performance Stock Units.
|
(h)
|
“Fair Market Value" means the closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be determined, or, if no shares were traded on such date, on the next day on which the Common Stock is traded.
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(i)
|
“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or similar event.
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(j)
|
"Grantee" means the person to whom this award has been granted.
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(k)
|
“Holding Company” means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the voting stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding voting stock.
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(l)
|
"Long Term Disability" means long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies.
|
(m)
|
“Net Shares” means the number of shares of Common Stock which will be deposited in a brokerage account in the Grantee’s name at the Company’s designated broker after shares have been withheld to satisfy applicable tax and withholding requirements upon vesting of the Performance Stock Units.
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(n)
|
“Performance Period” means the [ ] month performance period ending [date]. The Performance Period shall run from [date] to [date].
|
(o)
|
“Performance Stock Units” means the number of shares of Common Stock represented by the number of units awarded or such other amount as may result by operation of Article III of this Agreement.
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(p)
|
“Plan” means the Aetna Inc. 2010 Stock Incentive Plan.
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(q)
|
"Retirement" means the termination of employment of a Grantee from active service with the Company, any Subsidiary or Affiliate provided the Grantee’s age and completed years of service total 65 or more points at termination of employment.
|
(r)
|
“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.
|
(s)
|
“Shares of Stock” or “Stock” means the Common Stock.
|
(t)
|
"Subsidiary" means an entity of which, at the time such subsidiary status is to be determined, at least 50% of the total combined voting power of all classes of stock of such entity is held by the Company and/or one or more other subsidiaries.
|
(u)
|
"Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who shall acquire the right to the Performance Stock Units by bequest or inheritance or by reason of the death of the Grantee.
|
(v)
|
“Vest Date” means the last day of the Vesting Period and is the date on which this award of Performance Stock Units shall vest in accordance with the terms of this Agreement and in the Notice of Performance Stock Unit Grant, if at all.
|
(w)
|
“Vesting Period” means the period beginning on the Effective Date and ending thirty-six months thereafter.
|
(a)
|
Except as provided in (c) below, if, during the Vesting Period, Grantee shall cease to be employed by the Company, any Subsidiaries or Affiliates, for reason of death, Long-term Disability, Retirement or involuntary termination of employment by the Company, the portion of the Performance Stock Units that may vest on the Vest Date, if any, shall be calculated in accordance with the following formula: (i) the number of completed months employed during the Vesting period divided by the number of months in the Vesting Period; multiplied by (ii) the number of Performance Stock Units, that otherwise would have vested. For purposes of this calculation, a month is complete on the day in the month that corresponds to the Effective Date of the grant (e.g., February 12 to March 12).
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(b)
|
Except as provided in (a) above, any Performance Stock Unit not vested as of the date Grantee terminates employment shall be forfeited at the time of cessation of employment; provided, however, that if Grantee’s employment is terminated by the Company other than for cause and Grantee has not previously, or does not subsequently, vest to any portion of the Performance Stock Unit in accordance with its terms, then upon the forfeiture of the entire Performance Stock Unit, the Company will pay Grantee an amount equal to the value of a single share of Common Stock, whether or not the forfeited Performance Stock Unit related to more than a single share of Common Stock, calculated as of the cessation of employment, if requested by Grantee, within 30 days of such cessation of employment.
|
(c)
|
No Performance Stock Unit will vest after the Company has terminated the employment of the Grantee for cause, unless the Committee, in its sole discretion, deems a payment to be warranted under the particular circumstances. In addition, the Performance Stock Units will not vest if Grantee has willfully engaged in gross misconduct or other serious impropriety which the Company determines is likely to be damaging or detrimental to the Company, any Subsidiary or Affiliate.
|
(d)
|
Employment for purposes of determining the vesting rights of the Grantee and the expiration of the grant under this Article V shall mean continuous active full-time salaried employment with the Company, any Subsidiary or Affiliate, except that the period during which the Grantee is on vacation, sick leave, or other pre-approved leave of absence (provided there is no actual termination of employment), shall not interrupt the continuous employment of the Grantee. Employment shall also include service with Aetna Foundation, Inc. Notwithstanding any period during which Grantee receives salary continuation or severance shall
not
be considered as part of the continuous employment of the Grantee.
|
(a)
|
As consideration for this grant of Performance Stock Units, without prior written consent of the Company:
|
(i)
|
Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) use or disclose to any third person, whether during or subsequent to Grantee’s employment, any trade secrets, confidential information and proprietary materials, which may include, but are not limited to, the following categories of information and materials: customer lists and identities; provider lists and identities; employee lists and identities; product development and related information; marketing plans and related information; sales plans and related information; premium or other pricing information; operating policies and manuals; research; payment
rates; methodologies; procedures; contractual forms; business plans; financial records; computer programs; database; or other financial, commercial, business or technical information related to the Company, any Subsidiary or Affiliate unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement (“Confidential Information”); provided, however, that this limitation shall not apply to any such use or disclosure made while Grantee is employed by the Company, any Subsidiary or Affiliate if such disclosure occurred in connection with the performance of Grantee’s job as an employee of the Company, any Subsidiary or Affiliate;
|
(ii)
|
Grantee will not, during and for a period of twelve (12) months following Grantee’s termination of employment, directly or indirectly, (x) engage in the ownership (except less than 1% of the outstanding capital stock of any publicly traded company) of or, (y) become an employee of, or (z) act as a consultant or contractor to, any competitor of the Company (“Competitor”) in any market in the United States where Company, Affiliate or Subsidiary does business.
|
a.
|
For purposes of this paragraph “Competitor” shall mean any entity, organization, person or corporation that is involved in the same business as Company, Subsidiary or Affiliate, but in the case of (y) and (z), only to the extent such work, consulting or other activity on behalf of other entity, organization, person or corporation
|
i.
|
is materially similar to the duties and/or functions that Grantee performed for the Company, Subsidiary or Affiliate in the last 12 months or involves duties and/or functions for Competitor about which Grantee has Confidential Information in the last 12 months. Notwithstanding
|
1.
|
with respect to sales functions for the Company, Subsidiary or Affiliate that are regionally based or whose focus is geographically limited, the restriction shall only apply where such work, consulting or other activity on behalf of a Competitor overlaps in whole or in part the same geographic area in which the Grantee worked for Company, Subsidiary or Affiliate in the last 12 months;
|
2.
|
with respect to corporate staff functions, the restriction shall only apply where Competitor is substantially engaged in the business of health insurance, managed health care, population health management, or related products or services.
|
b.
|
Notwithstanding, if Grantee’s employment is terminated by the Company, Subsidiary or Affiliate other than for cause, the length of the noncompetition covenant in this paragraph shall not exceed the length of the severance and/or salary continuation benefits paid by the Company, Subsidiary or Affiliate to Grantee.
|
c.
|
Grantee acknowledges and agrees that these restrictions:
|
i.
|
are necessary to protect the Confidential Information and goodwill of the Company, Subsidiary or Affiliate;
|
ii.
|
are appropriately tailored and limited in time and geographic scope to do so; and
|
iii.
|
do not impair or limit the Grantee’s ability to earn a living.
|
(iii)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly induce or attempt to induce any employee of the Company, any Subsidiary or Affiliate to be employed or perform services elsewhere;
|
(iv)
|
Grantee will not, during and for a period of 24 months following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, supplier or health care provider of the Company, any Subsidiary or Affiliate to cease or curtail providing services to the Company, any Subsidiary or Affiliate; and
|
(v)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however, that this limitation shall only apply to any product or service which is in competition with a product or service of the Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved.
|
(vi)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, for himself or herself or on behalf of or in cooperation with any other person or entity, consult with or in any manner provide advice to, any individual or entity which is a customer of the Company or any Subsidiary or Affiliate of the Company, provided, however, that this limitation shall apply only to consultation or advice relating to any product or service of the Company, or any Subsidiary or Affiliate, or which is in competition with any product or service of the Company, or any Subsidiary or Affiliate, and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved, or about which Grantee has Confidential Information.
|
(vii)
|
Following the termination of Grantee’s Employment, Grantee shall provide assistance to and shall cooperate with the Company, any Subsidiary or Affiliate, upon its reasonable request and without additional compensation, with respect to matters within the scope of Grantee’s duties and responsibilities during Employment, provided that any reasonable out-of-pocket expenses Grantee incurs in connection with any assistance Grantee has been requested to provide under this provision for items including, but not limited to, transportation, meals, lodging and telephone, shall be reimbursed by the Company. The Company agrees and acknowledges that
it shall, to the maximum extent possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or Affiliate to coordinate, any such request with Grantee’s other commitments and responsibilities to minimize the degree to which such request interferes with such commitments and responsibilities; and
|
(viii)
|
Grantee shall promptly notify the Company’s General Counsel if Grantee is contacted by a regulatory or self-regulatory agency with respect to matters pertaining to the Company or by an attorney or other individual who informs the Grantee that he/she has filed, intends to file, or is considering filing a claim or complaint against the Company.
|
(ix)
|
Grantee acknowledges that all original works of authorship that are created by Grantee (solely or jointly with others) within the scope of Grantee’s employment and relating in any way to the business or contemplated business, products, activities, research or development of the Company, any Subsidiary or Affiliate, or resulting from any work performed by the Grantee for the Company, any Subsidiary or Affiliate (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101). To the extent that the foregoing does not apply, the Grantee hereby irrevocably assigns to the Company, and its successors and assigns, for no additional consideration, the Grantee’s entire right, title and interest in and to all such works of authorship. Grantee further acknowledges that while employed by the Company, any Subsidiary or Affiliate, Grantee may develop ideas, inventions, discoveries, innovations, procedures, methods, know-how or other works which relate to the Company’s current or are reasonably expected to relate to the Company’s future business (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) that may be patentable or subject to trade secret protection. Grantee agrees that all such works of authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how and other works shall belong exclusively to the Company, and the Grantee hereby assigns all right, title, and interest therein to the Company.
|
(b)
|
If any provision of Article VI (a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.
|
(c)
|
Grantee acknowledges that a material part of the inducement for the Company to grant the Performance Stock Units is Grantee’s covenants set forth in Article VI (a) and that the covenants and obligations of Grantee with respect to nondisclosure, non-solicitation and cooperation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, Grantee shall not be entitled to vest in the Performance Stock or be entitled to retain any income therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Article VI. The Company also shall be entitled to recover any attorneys’ fees, costs, and expenses it incurs in connection with any judicial proceeding arising out of Grantee’s breach of this Agreement. The remedies in the preceding sentences are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine.
|
(d)
|
The Restrictive Covenants set forth in this Article VI shall supplement and do not supersede the restrictions agreed to by Grantee in any other agreement or contract.
|
(e)
|
Employment Dispute Arbitration Program -
Mandatory Binding Arbitration of Employment Disputes.
|
(i)
|
Except as otherwise specified in this Agreement, the Grantee and the Company agree that all employment-related legal disputes between them will be submitted to and resolved by binding arbitration, and neither the Grantee nor the Company will file or participate as an individual party or member of a class in a lawsuit in any court against the other with respect to such matters. This shall apply to claims brought on or after the date the Grantee accepts this Agreement, even if the facts and circumstances relating to the claim occurred prior to that date and regardless of whether the Grantee or the Company previously filed a complaint/charge with a government agency concerning the claim.
|
(ii)
|
THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE SIGNING THIS AGREEMENT.
|
(iii)
|
Article VI (e) of this Agreement does not apply to workers’ compensation claims, unemployment compensation claims, and claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) for employee benefits. A dispute as to whether Article VI (e) of this Agreement applies must be submitted to the binding arbitration process set forth in this Agreement.
|
(iv)
|
The Grantee and/or the Company may seek emergency or temporary injunctive relief from a court (including with respect to claims arising out of Article VI (a) in accordance with applicable law). However, except as provided in Article VI (c) of this Agreement, after the court has issued a ruling concerning the emergency or temporary injunctive relief, the Grantee and the Company shall be required to submit the dispute to binding arbitration pursuant to this Agreement
.
|
(v)
|
Unless otherwise agreed, the arbitration will be administered by the American Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Rules”), as modified in this Agreement, in effect at the time the request for arbitration is filed. The AAA’s Rules are available on the AAA’s website at www.adr.org
.
THE GRANTEE ACKNOWLEDGES THAT THE COMPANY HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.
|
(vi)
|
If the Company initiates a request for arbitration, the Company will pay all of the administrative fees and costs charged by the AAA, including the arbitrator’s compensation and charges for hearing room rentals, etc. If the Grantee initiates a request for arbitration or submits a counterclaim to the Company’s request for arbitration, the Grantee shall be required to contribute One Hundred Dollars ($100.00) to those administrative fees and costs, payable to the AAA at the time the Grantee's request for arbitration or counterclaim is submitted. The Company may increase the contribution amount in the future without amending this Agreement, but not to exceed the maximum permitted under the AAA rules then in effect. In all cases, the Grantee and the Company shall be responsible for payment of any fees assessed by the arbitrator as a result of that party’s delay, request for postponement, failure to comply with the arbitrator’s rulings and for other similar reasons.
|
(vii)
|
The Grantee and the Company may choose to be represented by legal counsel in the arbitration process and shall be responsible for their own legal fees, expenses and costs. However, the arbitrator shall have the same authority as a court to order the Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs, in accordance with applicable law.
|
(viii)
|
Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee and the Company from a list of qualified neutrals furnished by the AAA. If the Grantee and the Company cannot agree on an arbitrator, one will be selected by the AAA.
|
(ix)
|
Unless otherwise agreed, the arbitration hearing will take place in the city where the Grantee works or last worked for the Company. If the Grantee and the Company disagree as to the proper locale, the AAA will decide.
|
(x)
|
The Grantee and the Company shall be entitled to conduct limited pre-hearing discovery. Each may take the deposition of one person and anyone designated by the other as an expert witness. The party taking the deposition shall be responsible for all associated costs, such as the cost of a
|
(xi)
|
The arbitrator shall apply the same substantive law that would apply if the matter were heard by a court and shall have the authority to order the same remedies (but no others) as would be available in a court proceeding. The time limits for requesting arbitration or submitting a counterclaim and the administrative prerequisites for filing an arbitration claim or counterclaim are the same as they would be in a court proceeding. The arbitrator shall consider and decide any dispositive motions (motions seeking a decision on some or all of the claims or counterclaims without an arbitration hearing) filed by any party.
|
(xii)
|
All proceedings, including the arbitration hearing and decision, are private and confidential, unless otherwise required by law. Arbitration decisions may not be published or publicized without the consent of both the Grantee and the Company.
|
(xiv)
|
The arbitrator’s decision is final and binding on the Grantee and the Company. After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order of judgment from a court and may obtain a court order enforcing the decision. The arbitrator’s decision may be appealed to the courts only under the limited circumstances provided by law.
|
(xv)
|
If the Grantee previously signed an agreement, including but not limited to an employment agreement, containing arbitration provisions, those provisions are superseded by the arbitration provisions of this Agreement.
|
(xvi)
|
If any provision of Article VI (e) is found to be void or otherwise unenforceable, in whole or in part, this shall not affect the validity of the remainder of Article VI (e) and the remainder of the Agreement. All other provisions shall remain in full force and effect.
|
(f)
|
Except as provided in connection with mandatory binding arbitration of employment disputes, Grantee hereby submits to the exclusive jurisdiction of the courts of the State of Connecticut and the United States District Court for the District of Connecticut with respect to any action relating to this Agreement, and agrees that (i) the sole and exclusive appropriate venue for any suit or proceeding relating to this Agreement shall be in such court, and (ii) hereby waives any and all objections and defenses based on forum, venue or personal or subject matter jurisdiction as they may relate to a suit or proceeding brought before such court in accordance with the Agreement.
|
(a)
|
Nothing in this Agreement shall interfere with or limit in any way the right of the Company, any Subsidiary or Affiliate to terminate the Grantee’s employment at any time. Neither the execution and delivery hereof nor the granting of the Award shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or any of its Subsidiaries to employ or continue the employment of the Grantee for any period.
|
(b)
|
Until the Performance Stock Units have become vested, Grantee shall not have any rights as a stockholder (including the right to payment of dividends) by virtue of this grant of Performance Stock Units.
|
(c)
|
During the Vesting Period, the Performance Stock Units shall be nontransferable and non-assignable except by will or the laws of descent and distribution.
|
(d)
|
The award, when vested, will be settled on a net basis. Prior to issuing any Common Shares, the Company will withhold an amount sufficient to satisfy federal, state, local, social security and Medicare withholding tax requirements relating to award. Any social security calculation or other adjustments discovered after net share payment will be settled in cash, not in Shares of Common Stock. Vesting will result in taxable compensation reportable on the Grantee’s W-2 in year of vesting.
|
(e)
|
The Company may from time to time adopt stock ownership requirements applicable to Grantees who are senior managers of the Company. In connection with and for the purpose of implementing those ownership requirements, the Company may adopt certain restrictions on the ability of a Grantee to sell shares issued under this Agreement when such ownership requirements have not been satisfied. Any such restriction on sale will be communicated generally to affected Grantees and the restriction may be modified by the Company from time to time, at its discretion. Neither the Company nor its Board of Directors shall have any obligation or liability to a Grantee in connection with any such restriction.
|
(f)
|
This Performance Stock Unit is an unfunded obligation of the Company and nothing in this Agreement shall be construed to create any claim against particular assets or require the Company to segregate or otherwise set aside any assets or create any fund to meet its obligations hereunder.
|
(g)
|
Anything herein to the contrary notwithstanding, a Grantee whose Performance Stock Units have been forfeited as a result of termination of employment due to U.S. Military Service and who is later re-employed (in a full-time active status) after discharge within the time period set in 38 U.S.C. Section 4312 will be eligible to have the forfeited Performance Stock Units reinstated as follows: (i) if such Grantee is re-employed during the Vesting Period, all forfeited Performance Stock Units shall be reinstated; or (ii) if such Grantee is re-employed after the Vesting Period, a cash payment will be made to the Grantee, minus applicable taxes, for the value of the forfeited Performance Stock Units on the Vest Date pursuant to procedures established by the Company for this purpose.
|
(h)
|
It is the intention of the Company and Grantee that this Agreement not result in unfavorable tax consequences to Grantee under Section 409A and the Agreement shall be interpreted as to so comply. Notwithstanding anything to the contrary herein, the Company and Grantee agree to the provisions set forth below in order to comply with the requirements of Section 409A.
|
(i)
|
If Grantee is a “specified employee” (within the meaning of Section 409A) with respect to the Company, any non-qualified deferred compensation otherwise payable to or in respect of Grantee in connection with Grantee’s termination of employment shall be delayed until the earliest date upon which such amounts may be paid without being subject to taxation under Section 409A. Any amount, the payment or benefit of which is delayed by application of the preceding sentence, shall be paid as soon as possible following the expiration of such period.
|
(ii)
|
Unless deferred pursuant to this agreement, all payments shall be paid to Grantee, to the extent earned, in no event later than the last day of the “applicable 2 ½ month period,” as such term is defined in Treasury Regulation Section 1.409A-1(b)(4)(i)(A) with respect to such payment’s treatment as a “short-term deferral” for purposes of Section 409A.
|
(iii)
|
The Company and Grantee agree to cooperate in good faith in an effort to comply with Section 409A. Under no circumstances shall the Company be responsible for any taxes, penalties, interest or other losses or expenses incurred by the Grantee due to any failure to comply with Section 409A.
|
(i)
|
This Agreement is subject to the 2010 Stock Incentive Plan heretofore adopted by the Company and approved by its shareholders. The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
|
(j)
|
At such times and upon such terms and conditions as the Company shall determine, the Company may permit eligible Grantees to elect to defer the distribution of an Award otherwise payable to the Grantee under this Agreement until termination of the Grantee’s Employment or such other date Company shall permit.
|
(k)
|
This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to its choice of law provisions.
|
(a)
|
“Affiliate" means an entity at least a majority of the total voting power of the then-outstanding voting securities of which is held, directly or indirectly, by the Company and/or one or more other Affiliates.
|
(b)
|
"Board" means the Board of Directors of Aetna Inc.
|
(i)
|
When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities;
|
(ii)
|
When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof,
provided
that
a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (ii); or
|
(iii)
|
The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.
|
(d)
|
"Committee" means the Board's Committee on Compensation and Organization or any successor thereto.
|
(e)
|
"Common Stock" means the Company's Common Shares, $.01 par value per share.
|
(f)
|
"Company" means Aetna Inc.
|
(g)
|
"Effective Date" means the date of grant of this award of Restricted Stock Units.
|
(h)
|
“Fair Market Value" means the closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be determined, or, if no shares were traded on such date, on the next day on which the Common Stock is traded.
|
(i)
|
“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or similar event.
|
(j)
|
"Grantee" means the person to whom this award has been granted.
|
(k)
|
“Holding Company” means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the voting stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding voting stock.
|
(l)
|
"Long Term Disability" means long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies.
|
(m)
|
“Net Shares” means the number of shares of Common Stock which will be deposited in a brokerage account in the Grantee’s name at the Company’s designated broker after shares have been withheld to satisfy applicable tax and withholding requirements upon vesting of the Restricted Stock Units.
|
(n)
|
“Plan” means the Aetna Inc. 2010 Stock Incentive Plan.
|
(o)
|
“Restricted Period” means the period during which this award of Restricted Stock Units is not vested.
|
(p)
|
“Restricted Stock Units” means the number of shares of Common Stock represented by the number of units awarded or such other amount as may result by operation of Article III of this Agreement.
|
(q)
|
"Retirement" means the termination of employment of a Grantee from active service with the Company, any Subsidiary or Affiliate provided the Grantee’s age and completed years of service total 65 or more points at termination of employment.
|
(r)
|
“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.
|
(s)
|
“Shares of Stock” or “Stock” means the Common Stock.
|
(t)
|
"Subsidiary" means an entity of which, at the time such subsidiary status is to be determined, at least 50% of the total combined voting power of all classes of stock of such entity is held by the Company and/or one or more other subsidiaries.
|
(u)
|
"Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who shall acquire the right to the Restricted Stock Units by bequest or inheritance or by reason of the death of the Grantee.
|
(v)
|
“Vest Date” means the date on which this award of Restricted Stock Units shall vest in accordance with the terms of this Agreement and as set forth on the website of the designated broker and in the Notice of Restricted Stock Unit Grant, if applicable.
|
(a)
|
Except as provided in (f) below, if the Grantee shall die during the Restricted Period, the unvested Restricted Stock Units shall become immediately vested and Net Shares, if any, will be deposited with the Company’s designated broker in a brokerage account established in Grantee’s name.
|
(b)
|
Except as provided in (f) below, if the Grantee shall begin to receive Long Term Disability benefits during the Restricted Period, the unvested Restricted Stock Units shall continue to vest and Net Shares, if any, will be deposited with the Company’s designated broker in a brokerage account established in Grantee’s name on the scheduled Vest Date(s) under Article II.
|
(c)
|
Except as provided in (f) below, if, during the restricted period, Grantee shall cease to be employed by the Company, any Subsidiaries or Affiliates during the Restricted Period, for reason of Retirement or involuntary termination of employment by the Company, a portion of the Restricted Stock Units shall vest in accordance with the following formula: (i) the number of completed months employed after the Effective Date divided by the number of full months in the restricted period; multiplied by (ii) number of Restricted Stock Units, minus any vested Restricted Stock Units. For purposes of this calculation, a month is complete on the day in the following month that corresponds to the Effective Date (e.g., February 13 to March 13). Net shares, if any, will be deposited with the Company’s designated broker in a brokerage account established in Grantee’s name on the next scheduled Vest Date under Article II and, applicable taxes and withholding will be applied based on the Fair Market Value on that date.
|
(d)
|
Except as provided in (e) and (f) below, if the Grantee shall, for a reason other than death, Long-Term Disability, Retirement or involuntary termination of employment by the Company, cease to be employed by the Company, any Subsidiaries or Affiliates during the Restricted Period, any unvested Restricted Stock Units shall be forfeited at the time of cessation of employment.
|
(e)
|
Except as provided in (a) or (b) or (c) above, any Restricted Stock Unit not vested as of the date Grantee terminates employment shall be forfeited at the time of cessation of employment; provided, however, that if Grantee’s employment is terminated by the Company other than for cause and Grantee has not previously, or does not subsequently, vest to any portion of the Restricted Stock Unit in accordance with its terms, then upon the forfeiture of the entire Restricted Stock Unit, the Company will pay Grantee an amount equal to the value of a single share of Common Stock, whether or not the forfeited Restricted Stock Unit related to more than a single share of Common Stock, calculated as of the cessation of employment, if requested by Grantee, within 30 days of such cessation of employment.
|
(f)
|
No Restricted Stock Unit will vest after the Company has terminated the employment of the Grantee for cause, unless the Committee, in its sole discretion, deems a payment to be warranted under the particular circumstances. In addition, the Restricted Stock Units will not vest if Grantee has willfully engaged in gross misconduct or other serious impropriety which the Company determines is likely to be damaging or detrimental to the Company, any Subsidiary or Affiliate.
|
(g)
|
Employment for purposes of determining the vesting rights of the Grantee and the expiration of the grant under this Article V shall mean continuous full-time salaried employment with the Company, any Subsidiary or an Affiliate, except that the period during which the Grantee is on vacation, sick leave, or other pre-approved leave of absence (provided there is no actual termination of employment), or in receipt of salary continuation or severance pay shall not interrupt the continuous employment of the Grantee. Employment shall also include service with Aetna Foundation, Inc.
|
(a)
|
As consideration for this grant of Restricted Stock Units, without prior written consent of the Company:
|
(i)
|
Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) use or disclose to any third person, whether during or subsequent to Grantee’s employment, any trade secrets, confidential information and proprietary materials, which may include, but are not limited to, the following categories of information and materials: customer lists and identities; provider lists and identities; employee lists and identities; product development and related information; marketing plans and related information; sales plans and related information; premium or other pricing information; operating policies and manuals; research; payment
rates; methodologies; procedures; contractual forms; business plans; financial records; computer programs; database; or other financial, commercial, business or technical information related to the Company, any Subsidiary or Affiliate unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement (“Confidential Information”); provided, however, that this limitation shall not apply to any such use or disclosure made while Grantee is
|
(ii)
|
Grantee will not, during and for a period of twelve (12) months following Grantee’s termination of employment, directly or indirectly, (x) engage in the ownership (except less than 1% of the outstanding capital stock of any publicly traded company) of or, (y) become an employee of, or (z) act as a consultant or contractor to, any competitor of the Company (“Competitor”) in any market in the United States where Company, Affiliate or Subsidiary does business.
|
a.
|
For purposes of this paragraph “Competitor” shall mean any entity, organization, person or corporation that is involved in the same business as Company, Subsidiary or Affiliate, but in the case of (y) and (z), only to the extent such work, consulting or other activity on behalf of other entity, organization, person or corporation
|
i.
|
is materially similar to the duties and/or functions that Grantee performed for the Company, Subsidiary or Affiliate in the last 12 months or involves duties and/or functions for Competitor about which Grantee has Confidential Information in the last 12 months. Notwithstanding
|
1.
|
with respect to sales functions for the Company, Subsidiary or Affiliate that are regionally based or whose focus is geographically limited, the restriction shall only apply where such work, consulting or other activity on behalf of a Competitor overlaps in whole or in part the same geographic area in which the Grantee worked for Company, Subsidiary or Affiliate in the last 12 months;
|
2.
|
with respect to corporate staff functions, the restriction shall only apply where Competitor is substantially engaged in the business of health insurance, managed health care, population health management, or related products or services.
|
b.
|
Notwithstanding, if Grantee’s employment is terminated by the Company, Subsidiary or Affiliate other than for cause, the length of the noncompetition covenant in this paragraph shall not exceed the length of the severance and/or salary continuation benefits paid by the Company, Subsidiary or Affiliate to Grantee.
|
c.
|
Grantee acknowledges and agrees that these restrictions:
|
i.
|
are necessary to protect the Confidential Information and goodwill of the Company, Subsidiary or Affiliate;
|
ii.
|
are appropriately tailored and limited in time and geographic scope to do so; and
|
iii.
|
do not impair or limit the Grantee’s ability to earn a living.
|
(iii)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly induce or attempt to induce any employee of the Company, any Subsidiary or Affiliate to be employed or perform services elsewhere;
|
(iv)
|
Grantee will not, during and for a period of 24 months following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, supplier or health care provider of the Company, any Subsidiary or Affiliate to cease or curtail providing services to the Company, any Subsidiary or Affiliate; and
|
(v)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however, that this limitation shall only apply to any product or service which is in competition with a product or service of the Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved.
|
(vi)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, for himself or herself or on behalf of or in cooperation with any other person or entity, consult with or in any manner provide advice to, any individual or entity which is a customer of the Company or any Subsidiary or Affiliate of the Company, provided, however, that this limitation shall apply only to consultation or advice relating to any product or service of the Company, or any Subsidiary or Affiliate, or which is in competition with any product or service of the Company, or any Subsidiary or Affiliate, and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved, or about which Grantee has Confidential Information
|
(vii)
|
Following the termination of Grantee’s Employment, Grantee shall provide assistance to and shall cooperate with the Company, any Subsidiary or Affiliate, upon its reasonable request and without additional compensation, with respect to matters within the scope of Grantee’s duties and responsibilities during Employment, provided that any reasonable out-of-pocket expenses Grantee incurs in connection with any assistance Grantee has been requested to provide under this provision for items including, but not limited to, transportation, meals, lodging and telephone, shall be reimbursed by the Company. The Company agrees and acknowledges that
it shall, to the maximum extent possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or Affiliate to coordinate, any such request with Grantee’s other commitments and responsibilities to minimize the degree to which such request interferes with such commitments and responsibilities; and
|
(viii)
|
Grantee shall promptly notify the Company’s General Counsel if Grantee is contacted by a regulatory or self-regulatory agency with respect to matters pertaining to the Company or by an attorney or other individual who informs the Grantee that he/she has filed, intends to file, or is considering filing a claim or complaint against the Company
.
|
(ix)
|
Grantee acknowledges that all original works of authorship that are created by Grantee (solely or jointly with others) within the scope of Grantee’s employment and relating in any way to the business or contemplated business, products, activities, research or development of the Company, any Subsidiary or Affiliate, or resulting from any work performed by the Grantee for the Company, any Subsidiary or Affiliate (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101). To the extent that the foregoing does not apply, the Grantee hereby irrevocably assigns to the Company, and its successors and assigns, for no additional consideration, the Grantee’s entire right, title and interest in and to all such works of authorship. Grantee further acknowledges that while employed by the Company, any Subsidiary or Affiliate, Grantee may develop ideas, inventions, discoveries, innovations, procedures, methods, know-how or other works which relate to the Company’s current or are reasonably expected to relate to the Company’s future business (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) that may be patentable or subject to trade secret protection. Grantee agrees that all such works of authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how and other works shall belong exclusively to the Company, and the Grantee hereby assigns all right, title, and interest therein to the Company.
|
(b)
|
If any provision of Article VI (a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.
|
(c)
|
Grantee acknowledges that a material part of the inducement for the Company to grant the Restricted Stock Units is Grantee’s covenants set forth in Article VI (a) and that the covenants and obligations of Grantee with respect to nondisclosure, non-solicitation and cooperation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, Grantee shall not be entitled to vest in the Restricted Stock or be entitled to retain any income therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Article VI. The Company also shall be entitled to recover any attorneys’ fees, costs, and expenses it incurs in connection with any judicial proceeding arising out of Grantee’s breach of this Agreement. The remedies in the preceding sentences are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine.
|
(d)
|
The Restrictive Covenants set forth in this Article VI shall supplement and do not supersede the restrictions agreed to by Grantee in any other agreement or contract.
|
(e)
|
Employment Dispute Arbitration Program -
Mandatory Binding Arbitration of Employment Disputes.
|
(i)
|
Except as otherwise specified in this Agreement, the Grantee and the Company agree that all employment-related legal disputes between them will be submitted to and resolved by binding arbitration, and neither the Grantee nor the Company will file or participate as an individual party or member of a class in a lawsuit in any court against the other with respect to such matters. This shall apply to claims brought on or after the date the Grantee accepts this Agreement, even if the facts and circumstances relating to the claim occurred prior to that date and regardless of whether the Grantee or the Company previously filed a complaint/charge with a government agency concerning the claim.
|
(ii)
|
THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE SIGNING THIS AGREEMENT.
|
(iii)
|
Article VI (e) of this Agreement does not apply to workers’ compensation claims, unemployment compensation claims, and claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) for employee benefits. A dispute as to whether Article VI (e) of this Agreement applies must be submitted to the binding arbitration process set forth in this Agreement.
|
(iv)
|
The Grantee and/or the Company may seek emergency or temporary injunctive relief from a court (including with respect to claims arising out of Article VI (a) in accordance with applicable law). However, except as provided in Article VI (c) of this Agreement, after the court has issued a ruling concerning the emergency or temporary injunctive relief, the Grantee and the Company shall be required to submit the dispute to binding arbitration pursuant to this Agreement
.
|
(v)
|
Unless otherwise agreed, the arbitration will be administered by the American Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Rules”), as modified in this Agreement, in effect at the time the request for arbitration is filed. The AAA’s Rules are available on the AAA’s website at www.adr.org. THE GRANTEE ACKNOWLEDGES THAT THE COMPANY HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.
|
(vi)
|
If the Company initiates a request for arbitration, the Company will pay all of the administrative fees and costs charged by the AAA, including the arbitrator’s compensation and charges for hearing room rentals, etc. If the Grantee initiates a request for arbitration or submits a counterclaim to the Company’s request for arbitration, the Grantee shall be required to contribute One Hundred Dollars ($100.00) to those administrative fees and costs, payable to the AAA at the time the Grantee's request for arbitration or counterclaim is submitted. The Company may increase the contribution amount in the future without amending this Agreement, but not to exceed the maximum permitted under the AAA rules then in effect. In all cases, the Grantee and the Company shall be responsible for payment of any fees assessed by the arbitrator as a result of that party’s delay, request for postponement, failure to comply with the arbitrator’s rulings and for other similar reasons.
|
(vii)
|
The Grantee and the Company may choose to be represented by legal counsel in the arbitration process and shall be responsible for their own legal fees, expenses and costs. However, the arbitrator shall have the same authority as a court to order the Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs, in accordance with applicable law.
|
(viii)
|
Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee and the Company from a list of qualified neutrals furnished by the AAA. If the Grantee and the Company cannot agree on an arbitrator, one will be selected by the AAA.
|
(ix)
|
Unless otherwise agreed, the arbitration hearing will take place in the city where the Grantee works or last worked for the Company. If the Grantee and the Company disagree as to the proper locale, the AAA will decide.
|
(x)
|
The Grantee and the Company shall be entitled to conduct limited pre-hearing discovery. Each may take the deposition of one person and anyone designated by the other as an expert witness. The party taking the deposition shall be responsible for all associated costs, such as the cost of a court reporter and the cost of an original transcript. Each party also has the right to submit one set of ten written questions (including subparts) to the other party, which must be answered under oath, and to request and obtain all documents on which the other party relies in support of its answers to the written questions. Additional discovery may be permitted by the arbitrator upon a showing that it is necessary for that party to have a fair opportunity to present a claim or defense.
|
(xi)
|
The arbitrator shall apply the same substantive law that would apply if the matter were heard by a court and shall have the authority to order the same remedies (but no others) as would be available in a court proceeding. The time limits for requesting arbitration or submitting a counterclaim and the administrative prerequisites for filing an arbitration claim or counterclaim are the same as they would be in a court proceeding. The arbitrator shall consider and decide any dispositive motions (motions seeking a decision on some or all of the claims or counterclaims without an arbitration hearing) filed by any party.
|
(xii)
|
All proceedings, including the arbitration hearing and decision, are private and confidential, unless otherwise required by law. Arbitration decisions may not be published or publicized without the consent of both the Grantee and the Company.
|
(xiv)
|
The arbitrator’s decision is final and binding on the Grantee and the Company. After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order of judgment from a court and may obtain a court order enforcing the decision. The arbitrator’s decision may be appealed to the courts only under the limited circumstances provided by law.
|
(xv)
|
If the Grantee previously signed an agreement, including but not limited to an employment agreement, containing arbitration provisions, those provisions are superseded by the arbitration provisions of this Agreement.
|
(xvi)
|
If any provision of Article VI (e) is found to be void or otherwise unenforceable, in whole or in part, this shall not affect the validity of the remainder of Article VI (e) and the remainder of the Agreement. All other provisions shall remain in full force and effect.
|
(f)
|
Except as provided in connection with mandatory binding arbitration of employment disputes, Grantee hereby submits to the exclusive jurisdiction of the courts of the State of Connecticut and the United States District Court for the District of Connecticut with respect to any action relating to this Agreement, and agrees that (i) the sole and exclusive appropriate venue for any suit or proceeding relating to this Agreement shall be in such court, and (ii) hereby waives any and all objections and defenses based on forum, venue or personal or subject matter jurisdiction as they may relate to a suit or proceeding brought before such court in accordance with the Agreement.
|
(a)
|
Nothing in this Agreement shall interfere with or limit in any way the right of the Company, any Subsidiary or Affiliate to terminate the Grantee’s employment at any time. Neither the execution and delivery hereof nor the granting of the Award shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or any of its Subsidiaries to employ or continue the employment of the Grantee for any period.
|
(b)
|
Until the Restricted Stock Units have become vested, Grantee shall not have any rights as a stockholder (including the right to payment of dividends) by virtue of this grant of Restricted Stock Units.
|
(c)
|
During the Restricted Period, the Restricted Stock Units shall be nontransferable and non-assignable except by will or the laws of descent and distribution.
|
(d)
|
The award will be settled on a net basis. Prior to issuing any Common Shares, the Company will withhold an amount sufficient to satisfy federal, state, local, social security and Medicare withholding tax requirements relating to award. Any social security calculation or other adjustments discovered after net share payment will be settled in cash, not in Shares of Common Stock. Vesting will result in taxable compensation reportable on the Grantee’s W-2 in year of vesting.
|
(e)
|
The Company may from time to time adopt stock ownership requirements applicable to Grantees who are senior managers of the Company. In connection with and for the purpose of implementing those ownership requirements, the Company may adopt certain restrictions on the ability of a Grantee to sell shares issued under this Agreement when such ownership requirements have not been satisfied. Any such restriction on sale will be communicated generally to affected Grantees and the restriction may be modified by the Company from time to time, at its discretion. Neither the Company nor its Board of Directors shall have any obligation or liability to a Grantee in connection with any such restriction.
|
(f)
|
This Restricted Stock Unit is an unfunded obligation of the Company and nothing in this Agreement shall be construed to create any claim against particular assets or require the Company to segregate or otherwise set aside any assets or create any fund to meet its obligations hereunder.
|
(g)
|
Anything herein to the contrary notwithstanding, a Grantee whose Restricted Stock Units have been forfeited as a result of termination of employment due to U.S. Military Service and who is later re-employed (in a full-time active status) after discharge within the time period set in 38 U.S.C. Section 4312 will be eligible to have the forfeited Restricted Stock Units reinstated as follows: (i) if such Grantee is re-employed during the Restricted Period, all forfeited Restricted Stock Units shall be reinstated; or (ii) if such Grantee is re-employed after the Restricted Period, a cash payment will be made to the Grantee, minus applicable taxes, for the value of the forfeited Restricted Stock Units on the Vest Date pursuant to procedures established by the Company for this purpose.
|
(h)
|
If any provision of this Agreement would cause Grantee to incur any additional tax or interest under Section 409A, the Company may reform such provision (including an amendment retroactive to the Effective Date to the extent permissible) to comply with Section 409A.
|
(i)
|
If the Company reasonably anticipates that the Company’s tax deduction with respect to the payment upon vesting of the Restricted Stock Units would be limited or eliminated by application of Section 162(m) of the Internal Revenue Code, the Company may elect, in accordance with Section 409A, to delay the payment of such Restricted Stock Units to the earliest date in which the Company anticipates that its tax deduction for such payment will not be limited or eliminated.
|
(j)
|
This Agreement is subject to the 2010 Stock Incentive Plan heretofore adopted by the Company and approved by its shareholders. The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
|
(k)
|
Voluntary Deferral. At such times and upon such terms and conditions as the Company shall determine in accordance with the terms of the Plan and Section 409A, the Company may permit eligible Grantees to elect to defer the distribution of an Award otherwise payable to the Grantee under this Agreement until termination of the Grantee’s Employment or such other date Company shall permit.
|
(l)
|
This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to its choice of law provisions.
|
(a)
|
"Affiliate" means an entity at least a majority of the total voting power of the then-outstanding voting securities of which is held, directly or indirectly, by the Company and/or one or more other Affiliates.
|
(b)
|
"Board" means the Board of Directors of Aetna Inc.
|
(c)
|
“Change in Control” means the happening of any of the following:
|
(i)
|
When any “person” as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities;
|
(ii)
|
When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof,
provided
that
a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (ii); or
|
(iii)
|
The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.
|
(d)
|
"Committee" means the Board's Committee on Compensation and Organization or any successor thereto.
|
(e)
|
"Common Stock" means shares of the Company's Common Stock, $.01 par value per share.
|
(f)
|
"Company" means Aetna Inc.
|
(g)
|
"Effective Date” means the date of grant of this Stock Appreciation Right, as approved by the Committee.
|
(h)
|
“Exercise Date” means the date the Grantee has notified the designated broker to exercise all or a portion of the Stock Appreciation Right.
|
(i)
|
"Fair Market Value" means the closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be determined, or, if no shares were traded on such day, on the next day on which the Common Stock is traded.
|
(j)
|
“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or similar event.
|
(k)
|
“Grantee” means the person to whom this Stock Appreciation Right has been granted.
|
(l)
|
“Grant Price” means the dollar amount per share of Common Stock that is the basis for determining the appreciation in value of the Common Stock.
|
(m)
|
“Holding Company” means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the voting stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as
|
(n)
|
"Long Term Disability" means long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies.
|
(o)
|
"Plan" means the Aetna Inc. 2010 Stock Incentive Plan.
|
(p)
|
"Retirement" means the termination of employment of a Grantee from active service with the Company, a Subsidiary or Affiliate provided the Grantee’s age and completed years of service total 65 or more points at termination of employment.
|
(q)
|
“SAR” means Stock Appreciation Right.
|
(r)
|
"Shares Granted" means the number of shares of Common Stock represented by the Stock Appreciation Right, or such other amount as may result by operation of Article IV of this Agreement.
|
(s)
|
"Shares of Stock" or "Stock" means the Common Stock.
|
(t)
|
“Stock Appreciation Right” or “SAR” means the right granted herein to be paid the excess, as of the Exercise Date, of (i) the Fair Market Value of the shares of Common Stock associated with this Stock Appreciation Right (or the portion thereof that is surrendered on exercise) over (ii) the Grant Price of such Stock Appreciation Right.
|
(u)
|
“Stock Appreciation Rights Vested” means number of Stock Appreciation Rights exercisable on any given date.
|
(v)
|
"Subsidiary" means any entity of which, at the time such subsidiary status is to be determined, at least 50% of the total combined voting power of all classes of stock in such entity is held by the Company and/or one or more other subsidiaries.
|
(w)
|
"Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who shall acquire the right to exercise a SAR by bequest or inheritance or by reason of the death of the Grantee.
|
(x)
|
"Term" means the period during which the SAR granted hereby may be exercised.
|
(y)
|
“Vest Date” means the date on which a portion of the SAR becomes exercisable pursuant to the Terms of the Award and, as set forth on the website of the designated broker and in the Notice of Stock Appreciation Right Grant, if applicable.
|
(a)
|
Subject to the terms of this Agreement, the term of the SAR shall commence on the first Vest Date and shall terminate, unless sooner terminated by the terms of the Plan or this Terms of Award Agreement, at:
|
(i)
|
The close of the Company's business on the day preceding the tenth anniversary of the Effective Date, if the Company is open for business on such day; or
|
(ii)
|
The close of the Company's business on the next preceding day that the Company is open for business.
|
(b)
|
The SAR is exercisable in installments, each installment to become exercisable as of the Vest Date in accordance with the terms of the Plan and this Terms of Award Agreement. Once an installment is vested, it may be exercised in whole or in part only during the Term of the SAR.
|
(a)
|
Except as provided in (d) below, if the Grantee shall die or begin to receive Long Term Disability benefits after the Effective Date, the SAR shall become vested and immediately exercisable and the Grantee or Successor of the Grantee may exercise the SAR until the earlier of:
|
(i)
|
The expiration of the Term of the SAR; or
|
(ii)
|
A period not to exceed five years following such death or commencement of Long Term Disability benefits.
|
(b)
|
Except as provided in (e) below, if Grantee shall, for reason of Retirement, cease to be employed by the Company, its Subsidiaries or Affiliates after the Effective Date, the Grantee will become immediately vested and may immediately exercise any SAR that would have otherwise become vested within one year from the Grantee’s termination of employment, and the Grantee or Successor of the Grantee may exercise a vested SAR until the earlier of:
|
(i)
|
The expiration of the Term of the SAR; or
|
(ii)
|
A period not to exceed five years following such cessation of employment.
|
(c)
|
Except as provided in (d) and (e) below, if the Grantee shall, for a reason other than death, Long Term Disability or Retirement, cease to be employed by the Company, its Subsidiaries or Affiliates during the Term of the SAR, the Grantee may exercise a vested SAR until the earlier of:
|
(i)
|
The expiration of the term of the SAR; or
|
(ii)
|
A period not to exceed ninety days following such cessation of employment.
|
(d)
|
Except as provided in (a) or (b) above, any SAR, or portion of a SAR that has not become vested and exercisable at the time of cessation of employment shall terminate immediately upon such cessation of employment and may not be exercised thereafter. Provided, however, if Grantee’s employment is terminated by the Company other than for cause and Grantee has not previously, or does not subsequently, vest to any portion of the SAR in accordance with its terms, then upon the forfeiture of the entire SAR, the Company shall pay Grantee an amount equal to the SAR value on a single share of Common Stock, whether or not the forfeited SAR related to more than a single share of Common Stock, calculated as of the date of termination of employment under the same
|
(e)
|
No SAR may vest or be exercised after the Company has terminated the employment of the Grantee for cause, except that the Committee may, in its sole discretion, permit the exercise of a vested SAR for a period of up to ninety days in cases where the Committee shall determine such exercise period is warranted under the particular circumstances. In addition, the Company may terminate the SAR if Grantee has willfully engaged in gross misconduct or other serious impropriety which the Company determines is likely to be damaging or detrimental to the Company, any Subsidiary or Affiliate.
|
(f)
|
Employment for purposes of determining the vesting rights of the Grantee and expiration date of the grant under this Article VI shall mean continuous full-time salaried employment with the Company, a Subsidiary or an Affiliate, except that the period during which the Grantee is on vacation, sick leave, or other pre-approved leave of absence (provided there is no actual termination of employment), or in receipt of salary continuation or severance pay shall not interrupt the continuous employment of the Grantee. Employment shall also include service with Aetna Foundation, Inc.
|
(g)
|
Except as otherwise herein provided, exercise of the SAR, whether by the Grantee or the Successor of the Grantee, shall be subject to all terms and conditions of this Agreement.
|
(a)
|
Grantee understands that the Grantee shall not have any rights as stockholder by virtue of the grant of an SAR but only with respect to shares of Common Stock actually issued to the Grantee in accordance with the terms hereof.
|
(b)
|
Anything herein to the contrary notwithstanding, the Company may postpone the exercise of the SAR or any portion thereof for such time as the Committee in its discretion may deem necessary, in order to permit the Company with reasonable diligence (i) to effect or maintain registration under the Securities Act of 1933, as amended, of the Plan or the shares of Common Stock issuable upon the exercise of the SAR or (ii) to determine that the Plan and such shares are exempt from registration; and the Company shall not be obligated by virtue of this Agreement or any provision of the Plan to recognize the exercise of the SAR or to sell or issue shares of Common Stock in violation of said Act or of the law of any government having jurisdiction thereof. Any such postponement shall not extend the Term of the SAR; and neither the Company nor its Board shall have any obligation or liability to the Grantee, or to the Grantee's Successor, with respect to any shares of Common Stock as to which the SAR shall lapse because of such postponement.
|
(c)
|
The SAR shall be nontransferable and nonassignable except by will and by the laws of descent and distribution. During the Grantee's lifetime, the SAR may be exercised only by the Grantee.
|
(d)
|
The SAR is not an incentive stock option as described in the Internal Revenue Code of 1986, as amended, Section 422A (b).
|
(e)
|
This Agreement is subject to the 2010 Stock Incentive Plan heretofore adopted by the Company and approved by its shareholders. The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
|
(f)
|
Anything herein to the contrary notwithstanding, a Grantee whose SAR has been forfeited as a result of termination of employment due to U.S. Military Service and who is later re-employed (in a full-time active status) after discharge within the time period set in 38 U.S.C. Section 4312 will be eligible to have the forfeited SAR reinstated for the original Term pursuant to procedures established by the Company for this purpose.
|
(g)
|
Nothing in this Agreement shall interfere with a limit in anyway the right of the Company or any Subsidiary or Affiliate to terminate the Grantee’s employment at any time. Neither the execution and delivery of this Agreement nor the granting of the SAR shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or any of its Subsidiaries to employ Grantee for any period.
|
(h)
|
This SAR is an unfunded obligation of the Company and nothing in this Agreement shall be construed to create any claim against particular assets or require the Company to segregate or otherwise set aside any assets or create any fund to meet its obligations hereunder.
|
(i)
|
The Company shall have the power to withhold, an amount sufficient to satisfy Federal, state and local, social security and medicare withholding tax requirements, if applicable. Any social security calculation or other adjustments discovered after the net share payment will be settled in cash, not in Common Stock.
|
(j)
|
The Company may from time to time adopt stock ownership requirements applicable to Grantees who are senior managers of the Company. In connection with and for the purpose of implementing those ownership requirements, the Company may adopt certain restrictions on the ability of a Grantee to sell shares issued under this Agreement when such ownership requirements have not been satisfied. Any such restriction on sale will be communicated generally to affected Grantees and the restriction may be modified by the Company from time to time, at its discretion. Neither the Company nor its Board of Directors shall have any obligation or liability to a Grantee in connections with any such restriction.
|
(k)
|
This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to its choice of law provisions.
|
(a)
|
As consideration for the grant of the SAR, without prior written consent of the Company:
|
(i)
|
Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) use or disclose to any third person, whether during or subsequent to Grantee’s Employment, any trade secrets, confidential information and proprietary materials, which may include, but are not limited to, the following categories of information and materials: customer lists and identities; provider lists and identities; employee lists and identities; product development and related information; marketing plans and related information; sales plans and related information; premium or other pricing information; operating policies and manuals; research; payment rates; methodologies; procedures; contractual forms; business plans; financial records; computer programs; database; or other financial, commercial, business or technical information related to the Company, any Subsidiary or Affiliate unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement (“Confidential Information”); provided, however, that this limitation shall not apply to any such use or disclosure made while Grantee is employed by the Company, any Subsidiary or Affiliate if such disclosure occurred in connection with the performance of Grantee’s job as an employee of the Company, any Subsidiary or Affiliate;
|
(ii)
|
Grantee will not, during and for a period of twelve (12) months following Grantee’s termination of employment, directly or indirectly, (x) engage in the ownership (except less than 1% of the outstanding capital stock of any publicly traded company) of or, (y) become an employee of, or (z) act as a consultant or contractor to, any competitor of the Company (“Competitor”) in any market in the United States where Company, Affiliate or Subsidiary does business.
|
a.
|
For purposes of this paragraph “Competitor” shall mean any entity, organization, person or corporation that is involved in the same business as Company, Subsidiary or Affiliate, but in the case of (y) and (z), only to the extent such work, consulting or other activity on behalf of other entity, organization, person or corporation
|
i.
|
is materially similar to the duties and/or functions that Grantee performed for the Company, Subsidiary or Affiliate in the last 12 months or involves duties and/or functions for Competitor about which Grantee has Confidential Information in the last 12 months. Notwithstanding
|
1.
|
with respect to sales functions for the Company, Subsidiary or Affiliate that are regionally based or whose focus is geographically limited, the restriction shall only apply where such work, consulting or other activity on behalf of a Competitor overlaps in whole or in part the same geographic area in which the Grantee worked for Company, Subsidiary or Affiliate in the last 12 months;
|
2.
|
with respect to corporate staff functions, the restriction shall only apply where Competitor is substantially engaged in the business of health insurance, managed health care, population health management, or related products or services.
|
b.
|
Notwithstanding, if Grantee’s employment is terminated by the Company, Subsidiary or Affiliate other than for cause, the length of the noncompetition covenant in this paragraph shall not exceed the length of the severance and/or salary continuation benefits paid by the Company, Subsidiary or Affiliate to Grantee.
|
c.
|
Grantee acknowledges and agrees that these restrictions:
|
i.
|
are necessary to protect the Confidential Information and goodwill of the Company, Subsidiary or Affiliate;
|
ii.
|
are appropriately tailored and limited in time and geographic scope to do so; and
|
iii.
|
do not impair or limit the Grantee’s ability to earn a living.
|
(iii)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly induce or attempt to induce any employee of the Company, and Subsidiary or Affiliate to be employed or perform services elsewhere;
|
(iv)
|
Grantee will not, during and for a period of 24 months following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, supplier or health care provider of the Company, any Subsidiary or Affiliate to cease or curtail providing services to the Company, any Subsidiary or Affiliate; and
|
(v)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, directly or indirectly solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however, that this limitation shall only apply to any product or service which is in competition with a product or service of the Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved
|
(vi)
|
Grantee will not, during and for a period of 24 months following Grantee’s termination of Employment, for himself or herself or on behalf of or in cooperation with any other person or entity, consult with or in any manner provide advice to, any individual or entity which is a customer of the Company or any Subsidiary or Affiliate of the Company, provided, however, that this limitation shall apply only to consultation or advice relating to any product or service of the Company, or any Subsidiary or Affiliate, or which is in competition with any product or service of the Company, or any Subsidiary or Affiliate, and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved, or about which Grantee has Confidential Information.
|
(viii)
|
Grantee shall promptly notify the Company’s General Counsel if Grantee is contacted by a regulatory or self-regulatory agency with respect to matters pertaining to the Company or by an attorney or other individual who informs the Grantee that he/she has filed, intends to file, or is considering filing a claim or complaint against the Company.
|
(ix)
|
Grantee acknowledges that all original works of authorship that are created by Grantee (solely or jointly with others) within the scope of Grantee’s employment and relating in any way to the business or contemplated business, products, activities, research or development of the Company, any Subsidiary or Affiliate, or resulting from any work performed by the Grantee for the Company, any Subsidiary or Affiliate (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101). To the extent that the foregoing does not apply, the Grantee hereby irrevocably assigns to the Company, and its successors and assigns, for no additional consideration, the Grantee’s entire right, title and interest in and to all such works of authorship. Grantee further acknowledges that while employed by the Company, any Subsidiary or Affiliate, Grantee may develop ideas, inventions, discoveries, innovations, procedures, methods, know-how or other works which relate to the Company’s current or are reasonably expected to relate to the Company’s future business (in each case, regardless of when or where the work product is prepared or whose equipment or other resources is used in preparing the same) that may be patentable or subject to trade secret protection. Grantee agrees that all such works of authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how and other works shall belong exclusively to the Company and the Grantee hereby assigns all right, title and interest therein to the Company.
|
(b)
|
If any provision of Article VIII (a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.
|
(c)
|
Grantee acknowledges that a material part of the inducement for the Company to grant the SAR is Grantee’s covenants set forth in Article VIII(a) and that the covenants and obligations of Grantee with respect to nondisclosure, nonsolicitation, cooperation and intellectual property rights relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, Grantee shall not be entitled to exercise the SAR or be entitled to retain any income therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Article VIII. The Company also shall be entitled to recover any attorneys’ fees, costs, and expenses it incurs in connection with any judicial proceeding arising out of Grantee’s breach of this Agreement. The remedies in the preceding sentences are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine..
|
(d)
|
The Restrictive Covenants set forth in this Article VIII shall supplement and do not supersede the restrictions agreed to by Grantee in any other agreement or contact.
|
(e)
|
Employment Dispute Arbitration Program -
Mandatory Binding Arbitration of Employment
Disputes.
|
(i)
|
Except as otherwise specified in this Agreement, the Grantee and the Company agree that all employment-related legal disputes between them will be submitted to and resolved by binding arbitration, and neither the Grantee nor the Company will file or participate as an individual party or member of a class in a lawsuit in any court against the other with respect to such matters. This shall apply to claims brought on or after the date the Grantee accepts this Agreement, even if the facts and circumstances relating to the claim occurred prior to that date and regardless of whether Grantee or the Company previously filed a complaint/charge with a government agency concerning the claim.
|
(ii)
|
THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE SIGNING THIS AGREEMENT.
|
(iii)
|
Article VIII (e) of this Agreement does not apply to workers’ compensation claims, unemployment compensation claims, and claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) for employee benefits. A dispute as to whether Article VIII (e) of this Agreement applies must be submitted to the binding arbitration process set forth in this Agreement.
|
(iv)
|
The Grantee and/or the Company may seek emergency or temporary injunctive relief from a court (including with respect to claims arising out of Article VIII (a) in accordance with applicable law). However, except as provided in Article VIII (c) of this Agreement, after the court has issued a ruling concerning the emergency or temporary injunctive relief, the Grantee and the Company shall be required to submit the dispute to binding arbitration pursuant to this Agreement.
|
(v)
|
Unless otherwise agreed, the arbitration will be administered by the American Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Rules”), as modified in this Agreement, in effect at the time the request for arbitration is filed. The AAA’s Rules are available on the AAA’s website at
www.adr.org
. THE GRANTEE ACKNOWLEDGES THAT THE COMPANY HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.
|
(vi)
|
If the Company initiates a request for arbitration, the Company will pay all of the administrative fees and costs charged by the AAA, including the arbitrator’s compensation and charges for hearing room rentals, etc. If the Grantee initiates a request for arbitration or submits a counterclaim to the Company’s request for arbitration, the Grantee shall be required to contribute One Hundred Dollars ($100.00) to those administrative fees and costs, payable to the AAA at the time the Grantee's request for arbitration or counterclaim is submitted. The Company may increase the contribution amount in the future without amending this Agreement, but not to exceed the maximum permitted under the AAA rules then in effect. In all cases, the Grantee and the Company shall be responsible for payment of any fees assessed by the arbitrator as a result of that party’s delay, request for postponement, failure to comply with the arbitrator’s rulings and for other similar reasons.
|
(vii)
|
The Grantee and the Company may choose to be represented by legal counsel in the arbitration process and shall be responsible for their own legal fees, expenses and costs. However, the arbitrator shall have the same authority as a court to order the Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs, in accordance with applicable law.
|
(viii)
|
Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee and the Company from a list of qualified neutrals furnished by the AAA. If the Grantee and the Company cannot agree on an arbitrator, one will be selected by the AAA.
|
(ix)
|
Unless otherwise agreed, the arbitration hearing will take place in the city where the Grantee works or last worked for the Company. If the Grantee and the Company disagree as to the proper locale, the AAA will decide.
|
(x)
|
The Grantee and the Company shall be entitled to conduct limited pre-hearing discovery. Each may take the deposition of one person and anyone designated by the other as an expert witness. The party taking the deposition shall be responsible for all associated costs, such as the cost of a court reporter and the cost of an original transcript. Each party also has the right to submit one set of ten written questions (including subparts) to the other party, which must be answered under oath, and to request and obtain all documents on which the other party relies in support of its answers to the written questions. Additional discovery may be permitted by the arbitrator upon a showing that it is necessary for that party to have a fair opportunity to present a claim or defense.
|
(xi)
|
The arbitrator shall apply the same substantive law that would apply if the matter were heard by a court and shall have the authority to order the same remedies (but no others) as would be available in a court proceeding. The time limits for requesting arbitration or submitting a counterclaim and the administrative prerequisites for filing an arbitration claim or counterclaim are the same as they would be in a court proceeding. The arbitrator shall consider and decide any dispositive motions (motions seeking a decision on some or all of the claims or counterclaims without an arbitration hearing) filed by any party.
|
(xii)
|
All proceedings, including the arbitration hearing and decision, are private and confidential, unless otherwise required by law. Arbitration decisions may not be published or publicized without the consent of both the Grantee and the Company.
|
(xiii)
|
Unless otherwise agreed, the arbitrator’s decision will be in writing with a brief summary of the arbitrator’s opinion.
|
(xiv)
|
The arbitrator’s decision is final and binding on the Grantee and the Company. After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order of judgment from a court and may obtain a court order enforcing the decision. The arbitrator’s decision may be appealed to the courts only under the limited circumstances provided by law.
|
(xv)
|
If the Grantee previously signed an agreement, including but not limited to an employment agreement, containing arbitration provisions, those provisions are superseded by the arbitration provisions of this Agreement.
|
(xvi)
|
If any provision of Article VIII (e) is found to be void or otherwise unenforceable, in whole or in part, this shall not affect the validity of the remainder of Article VIII (e) and the remainder of the Agreement. All other provisions shall remain in full force and effect.
|
(f)
|
Except as provided in connection with mandatory binding arbitration of employment disputes, Grantee hereby submits to the exclusive jurisdiction of the courts of the State of Connecticut and the United States District Court for the District of Connecticut with respect to any action relating to this Agreement, and agrees that (i) the sole and exclusive appropriate venue for any suit or proceeding relating to this Agreement shall be in such court, and (ii) hereby waives any and all objections and defenses based on forum, venue or personal or subject matter jurisdiction as they may relate to a suit or proceeding brought before such court in accordance with the Agreement.
|
•
|
Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments; and
|
•
|
Products for which the Company no longer solicits or accepts new customers such as large case pensions and long-term care insurance products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
Year Ended December 31,
|
|
2018 vs. 2017
|
|
2017 vs. 2016
|
||||||||||||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Products
|
$
|
183,910
|
|
|
$
|
180,063
|
|
|
$
|
173,377
|
|
|
$
|
3,847
|
|
|
2.1
|
%
|
|
$
|
6,686
|
|
|
3.9
|
%
|
Premiums
|
8,184
|
|
|
3,558
|
|
|
3,069
|
|
|
4,626
|
|
|
130.0
|
%
|
|
489
|
|
|
15.9
|
%
|
|||||
Services
|
1,825
|
|
|
1,144
|
|
|
1,080
|
|
|
681
|
|
|
59.5
|
%
|
|
64
|
|
|
5.9
|
%
|
|||||
Net investment income
|
660
|
|
|
21
|
|
|
20
|
|
|
639
|
|
|
3,042.9
|
%
|
|
1
|
|
|
5.0
|
%
|
|||||
Total revenues
|
194,579
|
|
|
184,786
|
|
|
177,546
|
|
|
9,793
|
|
|
5.3
|
%
|
|
7,240
|
|
|
4.1
|
%
|
|||||
Operating Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of products sold
|
156,447
|
|
|
153,448
|
|
|
146,533
|
|
|
2,999
|
|
|
2.0
|
%
|
|
6,915
|
|
|
4.7
|
%
|
|||||
Benefit costs
|
6,594
|
|
|
2,810
|
|
|
2,179
|
|
|
3,784
|
|
|
134.7
|
%
|
|
631
|
|
|
29.0
|
%
|
|||||
Goodwill impairments
|
6,149
|
|
|
181
|
|
|
—
|
|
|
5,968
|
|
|
3,297.2
|
%
|
|
181
|
|
|
—
|
%
|
|||||
Operating expenses
|
21,368
|
|
|
18,809
|
|
|
18,448
|
|
|
2,559
|
|
|
13.6
|
%
|
|
361
|
|
|
2.0
|
%
|
|||||
Total operating costs
|
190,558
|
|
|
175,248
|
|
|
167,160
|
|
|
15,310
|
|
|
8.7
|
%
|
|
8,088
|
|
|
4.8
|
%
|
|||||
Operating income
|
4,021
|
|
|
9,538
|
|
|
10,386
|
|
|
(5,517
|
)
|
|
(57.8
|
)%
|
|
(848
|
)
|
|
(8.2
|
)%
|
|||||
Interest expense
|
2,619
|
|
|
1,062
|
|
|
1,078
|
|
|
1,557
|
|
|
146.6
|
%
|
|
(16
|
)
|
|
(1.5
|
)%
|
|||||
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
—
|
%
|
|
(643
|
)
|
|
(100.0
|
)%
|
|||||
Other expense (income)
|
(4
|
)
|
|
208
|
|
|
28
|
|
|
(212
|
)
|
|
(101.9
|
)%
|
|
180
|
|
|
642.9
|
%
|
|||||
Income before income tax provision
|
1,406
|
|
|
8,268
|
|
|
8,637
|
|
|
(6,862
|
)
|
|
(83.0
|
)%
|
|
(369
|
)
|
|
(4.3
|
)%
|
|||||
Income tax provision
|
2,002
|
|
|
1,637
|
|
|
3,317
|
|
|
365
|
|
|
22.3
|
%
|
|
(1,680
|
)
|
|
(50.6
|
)%
|
|||||
Income (loss) from continuing operations
|
(596
|
)
|
|
6,631
|
|
|
5,320
|
|
|
(7,227
|
)
|
|
(109.0
|
)%
|
|
1,311
|
|
|
24.6
|
%
|
|||||
Loss from discontinued operations, net of tax
|
—
|
|
|
(8
|
)
|
|
(1
|
)
|
|
8
|
|
|
(100.0
|
)%
|
|
(7
|
)
|
|
700.0
|
%
|
|||||
Net income (loss)
|
(596
|
)
|
|
6,623
|
|
|
5,319
|
|
|
(7,219
|
)
|
|
(109.0
|
)%
|
|
1,304
|
|
|
24.5
|
%
|
|||||
Net (income) loss attributable to noncontrolling interest
|
2
|
|
|
(1
|
)
|
|
(2
|
)
|
|
3
|
|
|
(300.0
|
)%
|
|
1
|
|
|
(50.0
|
)%
|
|||||
Net income (loss) attributable to CVS Health
|
$
|
(594
|
)
|
|
$
|
6,622
|
|
|
$
|
5,317
|
|
|
$
|
(7,216
|
)
|
|
(109.0
|
)%
|
|
$
|
1,305
|
|
|
24.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
Total revenues increased
$9.8 billion
or
5.3%
in
2018
compared to
2017
. The increase in total revenues was due to a
2.7%
increase in Pharmacy Services segment revenue, a
5.8%
increase in Retail/LTC segment revenue and the impact of the Aetna Acquisition (primarily reflected in the Health Care Benefits segment) which occurred in November 2018.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the revenues of the Company’s segments.
|
•
|
Operating expenses increased
$8.5 billion
or
44.9%
in
2018
compared to
2017
. The increase in operating expenses was primarily due to higher operating expenses in the Retail/LTC segment including increased goodwill impairment charges in 2018, the impact of the Aetna Acquisition and an increase in acquisition-related transaction and integration costs. The increase was partially offset by a lack of charges associated with store closures in 2018.
|
•
|
Operating expenses as a percentage of total revenues was
14.1%
in
2018
, an increase of
380
basis points compared to
2017
. The increase in operating expenses as a percentage of total revenues in
2018
was primarily due to the goodwill impairment charges in the Retail/LTC segment in 2018.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the operating expenses of the Company’s segments.
|
•
|
Operating income decreased
$5.5 billion
or
57.8%
in
2018
compared to
2017
. The decrease was primarily due to the increase in operating expenses described above, continued price compression in the Pharmacy Services segment and reimbursement pressure in the Retail/LTC segment. The decrease was partially offset by increased prescription volume, improved purchasing economics and the addition of Aetna.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the operating income of the Company’s segments.
|
•
|
Interest expense increased
$1.6 billion
during
2018
, primarily due to financing activity associated with the Aetna Acquisition. See
Note 8 ‘‘Borrowings and Credit Agreements’’
to the consolidated financial statements for additional information.
|
•
|
Other expense decreased
$212 million
during 2018, primarily due to 2017 reflecting a $187 million loss on settlement of the Company’s defined benefit pension plans.
|
•
|
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. Among numerous changes to existing tax laws, the TCJA permanently reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Company completed its assessment of the TCJA’s final impact in December 2018 and recorded an additional tax benefit of approximately
$100 million
.
|
•
|
The Company’s effective income tax rate was
142.4%
in
2018
compared to
19.8%
in
2017
. The increase in the effective income tax rate was primarily due to the goodwill impairment charges in the Retail/LTC segment in 2018, the majority of which are not deductible for income tax purposes, and an income tax benefit of $1.5 billion in 2017 which reflected the remeasurement of the Company’s net deferred income tax liabilities as a result of the enactment of the TCJA. The increase was partially offset by a lower federal corporate income tax rate in 2018 compared to the prior year as a result of the enactment of the TCJA, which reduced the corporate income tax rate in 2018 to 21% from 35% in 2017.
|
•
|
In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things, which filed for bankruptcy in 2008, and Bob’s stores, which filed for bankruptcy in 2016. The Company’s loss from discontinued operations includes lease-related costs required to satisfy its Linens ‘n Things and Bob’s Stores lease guarantees.
|
•
|
The Company incurred a loss from discontinued operations, net of tax, of
$8 million
in
2017
. Results from discontinued operations were immaterial in 2018.
|
•
|
See “Discontinued Operations” in
Note 1 ‘‘Significant Accounting Policies’’
to the consolidated financial statements for additional information about discontinued operations and
Note 16 ‘‘Commitments and Contingencies’’
to the consolidated financial statements for additional information about the Company’s lease guarantees.
|
•
|
Total revenues increased
$7.2 billion
or
4.1%
in
2017
compared to
2016
. The increase in total revenues was due to a
8.9%
increase in Pharmacy Services segment revenue, partially offset by a
2.1%
decrease in Retail/LTC segment revenue.
|
•
|
The increase in generic dispensing rates in
2017
negatively affected both the Pharmacy Services and Retail/LTC segment revenues in
2017
compared to
2016
.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the revenues of the Company’s segments.
|
•
|
Operating expenses increased
$542 million
, or
2.9%
, in
2017
compared to
2016
. The increase in operating expenses primarily relates to (i) higher operating expenses in the Retail/LTC segment including an increase of $181 million in charges associated with the closure of retail stores in connection with the Company’s enterprise streamlining initiative and a $181 million goodwill impairment charge related to the RxCrossroads reporting unit; and (ii) higher operating expenses
|
•
|
Operating expenses as a percentage of total revenues was
10.3%
in
2017
, a decline of
10
basis points compared to
2016
. The decline in operating expenses as a percentage of total revenues in 2017 was primarily due expense leverage from revenue growth.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the operating expenses of the Company’s segments.
|
•
|
Operating income decreased
$848 million
or
8.2%
in
2017
compared to
2016
. The decrease was primarily driven by the previously announced restricted networks that excluded CVS Pharmacy, continued price compression in the Pharmacy Services segment, reimbursement pressure in the Retail/LTC segment and the increased operating expenses described above.
|
•
|
Please see “Segment Analysis” later in this document for additional information about the operating income of the Company’s segments.
|
•
|
Interest expense decreased
$16 million
during
2017
, primarily due to the Company’s debt issuance and debt tender offers that occurred in 2016 which resulted in overall more favorable interest rates on the Company’s long-term debt. See
Note 8 ‘‘Borrowings and Credit Agreements’’
to the consolidated financial statements for additional information.
|
•
|
Other expense increased
$180 million
during
2017
, primarily due to 2017 reflecting a $187 million loss on settlement of the Company’s defined benefit pension plans.
|
•
|
The loss on early extinguishment of debt of
$643 million
in 2016 relates to the redemption of approximately $4.2 billion aggregate principal amount of certain of the Company’s senior notes (see
Note 8 ‘‘Borrowings and Credit Agreements’’
to the consolidated financial statements). As a result of the redemption, the Company paid a premium of $583 million in excess of the debt principal, wrote off $54 million of unamortized deferred financing costs and incurred $6 million in fees.
|
•
|
The Company’s effective income tax rate was
19.8%
in
2017
compared to
38.4%
in
2016
. The decrease in the effective income tax rate was primarily due to the provisional impact of the TCJA, including the revaluation of net deferred tax liabilities.
|
•
|
As the result of the reduction of the corporate income tax rate under the TCJA, the Company estimated the revaluation of its net deferred tax liabilities and recorded a provisional noncash income tax benefit of approximately $1.5 billion in 2017.
|
•
|
Please see the
Commentary -
2018
compared to
2017
section above for additional information about the Company’s discontinued operations.
|
•
|
The Company incurred losses from discontinued operations, net of tax, of
$8 million
and
$1 million
in
2017
and
2016
, respectively.
|
•
|
Ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments and reductions in the traditional offsets to those pressures, including a declining benefit from the introduction of new multi-source generic prescription drugs and lower benefits from generic dispensing rate increases;
|
•
|
The reimbursement pressure in the Pharmacy Services segment is projected to be exacerbated by the cumulative effect on rebate guarantees of lower brand name drug price inflation and a modest 2019 selling season; and
|
•
|
The Retail/LTC segment is projected to be impacted by structural and Company specific challenges in the long-term care space as well as the annualization of the Company’s 2018 investment of a portion of the savings from the TCJA in wages and benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
In millions
|
Pharmacy
Services
(1)(2)
|
|
Retail/LTC
(2)
|
|
Health Care Benefits
(2)
|
|
Corporate/ Other
|
|
Intersegment
Eliminations
(2)
|
|
Consolidated
Totals
|
||||||||||||
2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
(3)
|
$
|
134,128
|
|
|
$
|
83,989
|
|
|
$
|
5,549
|
|
|
$
|
606
|
|
|
$
|
(29,693
|
)
|
|
$
|
194,579
|
|
Operating income (loss)
(4)(5)
|
4,699
|
|
|
620
|
|
|
276
|
|
|
(805
|
)
|
|
(769
|
)
|
|
4,021
|
|
||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
(7)
|
130,601
|
|
|
79,398
|
|
|
—
|
|
|
16
|
|
|
(25,229
|
)
|
|
184,786
|
|
||||||
Operating income (loss)
(4)(5(7)
|
4,657
|
|
|
6,558
|
|
|
—
|
|
|
(936
|
)
|
|
(741
|
)
|
|
9,538
|
|
||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
(7)
|
119,965
|
|
|
81,100
|
|
|
—
|
|
|
18
|
|
|
(23,537
|
)
|
|
177,546
|
|
||||||
Operating income (loss)
(4)(5)(6)(7)
|
4,570
|
|
|
7,437
|
|
|
—
|
|
|
(900
|
)
|
|
(721
|
)
|
|
10,386
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total revenues of the Pharmacy Services segment include approximately
$11.4 billion
,
$10.8 billion
and
$10.5 billion
of Retail Co-Payments for
2018
,
2017
and
2016
, respectively. See
Note 1 ‘‘Significant Accounting Policies’’
to the consolidated financial statements for additional information about Retail Co-Payments.
|
(2)
|
Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment and the Retail/LTC segment for 2018, 2017 and 2016. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Pharmacy Services segment and/or the Retail/LTC segment.
|
(3)
|
Corporate/Other segment revenues for
2018
include interest income of $536 million related to the proceeds of the
$40 billion
principal amount of unsecured floating rate notes and unsecured fixed rate senior notes the Company issued on March 9, 2018 (collectively, the “2018 Notes”). This amount is for the period prior to the close of the Aetna Acquisition, which occurred on November 28, 2018.
|
(4)
|
Retail/LTC segment operating income for
2018
,
2017
and
2016
includes
$7 million
,
$34 million
and
$281 million
, respectively, of acquisition-related integration costs. The integration costs in
2018
and
2017
are related to the acquisition of Omnicare. The integration costs in
2016
are related to the acquisitions of Omnicare and the pharmacy and clinic businesses of Target Corporation (“Target”). Retail/LTC segment operating income for
2018
and
2017
also includes goodwill impairment charges of
$6.1 billion
related to the LTC reporting unit and
$181 million
related to the RxCrossroads reporting unit, respectively. In addition, Retail/LTC segment operating income for
2017
and
2016
includes
$215 million
and
$34 million
, respectively, of charges associated with store rationalization and asset impairment charges in connection with planned store closures related to the Company’s enterprise streamlining initiative. Retail/LTC segment operating income for 2018 also includes a $43 million loss on impairment of long-lived assets primarily related to the impairment of property and equipment and an $86 million loss on the divestiture of the Company’s RxCrossroads subsidiary.
|
(5)
|
Corporate/Other segment operating loss for
2018
,
2017
and
2016
includes
$485 million
, $40 million and $10 million, respectively, of divestiture and acquisition-related transaction and integration costs included in operating expenses in the consolidated statements of operations. The transaction and integration costs in 2018 are related to the acquisitions of Aetna and Omnicare. The transaction and integration costs in 2017 are related to the acquisitions of Aetna and Omnicare and the divestiture of RxCrossroads. The integration costs in 2016 are related to the acquisitions of Omnicare and the pharmacy and clinic businesses of Target.
|
(6)
|
Pharmacy Services segment operating income for
2016
includes the reversal of an accrual of
$88 million
in connection with a legal settlement.
|
(7)
|
Amounts revised to reflect the reclassification of interest income from interest expense, net to net investment income within total revenues to conform with insurance company presentation which increased total revenues and operating income by
$21 million
and
$20 million
in
2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
Year Ended December 31,
|
|
2018 vs. 2017
|
|
2017 vs. 2016
|
||||||||||||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Products
|
$
|
130,264
|
|
|
$
|
126,770
|
|
|
$
|
116,639
|
|
|
$
|
3,494
|
|
|
2.8
|
%
|
|
$
|
10,131
|
|
|
8.7
|
%
|
Premiums
|
3,361
|
|
|
3,558
|
|
|
3,069
|
|
|
(197
|
)
|
|
(5.5
|
)%
|
|
489
|
|
|
15.9
|
%
|
|||||
Services
|
490
|
|
|
268
|
|
|
255
|
|
|
222
|
|
|
82.8
|
%
|
|
13
|
|
|
5.1
|
%
|
|||||
Net investment income
(1)
|
13
|
|
|
5
|
|
|
2
|
|
|
8
|
|
|
160.0
|
%
|
|
3
|
|
|
150.0
|
%
|
|||||
Total revenues
|
134,128
|
|
|
130,601
|
|
|
119,965
|
|
|
3,527
|
|
|
2.7
|
%
|
|
10,636
|
|
|
8.9
|
%
|
|||||
Cost of products sold
|
125,107
|
|
|
121,799
|
|
|
111,949
|
|
|
3,308
|
|
|
2.7
|
%
|
|
9,850
|
|
|
8.8
|
%
|
|||||
Benefit costs
|
2,805
|
|
|
2,810
|
|
|
2,179
|
|
|
(5
|
)
|
|
(0.2
|
)%
|
|
631
|
|
|
29.0
|
%
|
|||||
Operating expenses
(2)
|
1,517
|
|
|
1,335
|
|
|
1,267
|
|
|
182
|
|
|
13.6
|
%
|
|
68
|
|
|
5.4
|
%
|
|||||
Operating expenses % of revenues
|
1.1
|
%
|
|
1.0
|
%
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Operating income
(1)
|
$
|
4,699
|
|
|
$
|
4,657
|
|
|
$
|
4,570
|
|
|
$
|
42
|
|
|
0.9
|
%
|
|
$
|
87
|
|
|
1.9
|
%
|
Operating income % of revenues
|
3.5
|
%
|
|
3.6
|
%
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Revenues (by distribution channel):
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pharmacy network
(3)(4)
|
$
|
83,261
|
|
|
$
|
80,891
|
|
|
$
|
73,686
|
|
|
$
|
2,370
|
|
|
2.9
|
%
|
|
$
|
7,205
|
|
|
9.8
|
%
|
Mail choice
(5)
|
46,934
|
|
|
45,709
|
|
|
42,783
|
|
|
1,225
|
|
|
2.7
|
%
|
|
2,926
|
|
|
6.8
|
%
|
|||||
Other
(4)
|
3,920
|
|
|
3,996
|
|
|
3,494
|
|
|
(76
|
)
|
|
(1.9
|
)%
|
|
502
|
|
|
14.4
|
%
|
|||||
Pharmacy claims processed:
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
1,889.8
|
|
|
1,781.9
|
|
|
1,639.2
|
|
|
107.9
|
|
|
6.1
|
%
|
|
142.7
|
|
|
8.7
|
%
|
|||||
Pharmacy network
(3)
|
1,601.4
|
|
|
1,516.7
|
|
|
1,387.7
|
|
|
84.7
|
|
|
5.6
|
%
|
|
129
|
|
|
9.3
|
%
|
|||||
Mail choice
(5)
|
288.4
|
|
|
265.2
|
|
|
251.5
|
|
|
23.2
|
|
|
8.7
|
%
|
|
13.7
|
|
|
5.4
|
%
|
|||||
Generic dispensing rate:
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total
|
87.3
|
%
|
|
87.0
|
%
|
|
85.9
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Pharmacy network
(3)
|
87.9
|
%
|
|
87.7
|
%
|
|
86.7
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Mail choice
(5)
|
83.9
|
%
|
|
83.1
|
%
|
|
81.4
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Mail choice penetration rate
(6)(7)
|
15.3
|
%
|
|
14.9
|
%
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts revised to reflect the reclassification of interest income from interest expense, net to net investment income within revenues to conform with insurance company presentation which increased both net investment income and operating income by
$5 million
and
$2 million
in
2017
and
2016
, respectively.
|
(2)
|
Pharmacy Services segment operating expenses in 2016 include the reversal of an accrual of
$88 million
in connection with a legal settlement.
|
(3)
|
Pharmacy network revenues, pharmacy network claims processed and pharmacy network generic dispensing rate do not include Maintenance Choice
®
activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice activity.
|
(4)
|
Amounts revised for 2017 and 2016 to reflect the reclassification of Medicare Part D premium revenues from pharmacy network revenues to other revenues.
|
(5)
|
Mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect
®
claims picked up at a CVS Pharmacy retail store, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order..
|
(6)
|
Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
|
(7)
|
The pharmacy claims processed, generic dispensing rate and mail choice penetration rate in 2016 have been revised to convert 90-day prescriptions to the equivalent of three 30-day prescriptions.
|
(8)
|
Excludes net investment income.
|
•
|
Total revenues increased
$3.5 billion
, or
2.7%
, to
$134.1 billion
in 2018 compared to 2017. The increase was primarily due to increased total pharmacy claims volume, partially offset by continued client pricing pressures.
|
•
|
As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s mail choice claims processed, on a 30-day equivalent basis, increased
8.7%
to
288.4 million
claims in
2018
compared to
265.2 million
claims in
2017
. The increase in mail choice claims was primarily driven by the continued adoption of Maintenance Choice offerings and an increase in specialty pharmacy claims.
|
•
|
During
2018
, the average revenue per mail choice claim, on a 30-day equivalent basis, decreased by 5.6% compared to
2017
as a result of price compression.
|
•
|
The Company’s pharmacy network claims processed, on a 30-day equivalent basis, increased
5.6%
to approximately
1.6 billion
claims in
2018
compared to approximately
1.5 billion
claims in
2017
. The increase in the pharmacy network claim volume was primarily due to net new business.
|
•
|
During
2018
, the average revenue per pharmacy network claim processed, on a 30-day equivalent basis, decreased 2.7% compared to
2017
as a result of continued price compression.
|
•
|
The Company’s total generic dispensing rate increased to
87.3%
in
2018
compared to
87.0%
in
2017
. The continued increase in the Company’s generic dispensing rate was primarily due to the impact of new generic drug introductions and the Company’s ongoing efforts to encourage plan members to use generic drugs when they are available and clinically appropriate. The Company believes its generic dispensing rate will continue to increase in future periods, albeit at a slower pace. This increase will be affected by, among other things, the number of new brand and generic drug introductions and the Company’s success at encouraging plan members to utilize generic drugs when they are available and clinically appropriate.
|
•
|
Operating expenses in the Pharmacy Services segment include selling, general and administrative expenses, depreciation and amortization related to selling, general and administrative activities and administrative payroll, employee benefits and occupancy costs.
|
•
|
Operating expenses increased
$182 million
, or
13.6%
, in
2018
compared to
2017
. The year over year increase in operating expenses was primarily due to:
|
•
|
Growth in the business, including acquisitions; and
|
•
|
The reinstatement of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010’ s (as amended, collectively, the “ACA’s”) health insurer fee (“HIF”) in 2018;
|
•
|
Partially offset by the realization of partially reserved receivables in 2017 which reduced operating expenses.
|
•
|
Operating expenses as a percentage of total revenues remained relatively consistent at
1.1%
and
1.0%
in
2018
and
2017
, respectively.
|
•
|
Operating income increased
$42 million
, or
0.9%
, to
$4.7 billion
in
2018
compared to
2017
. The increase in operating income was primarily due to increased claims volume and improved purchasing economics, partially offset by continued price compression and the increased operating expenses described above.
|
•
|
As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider.
|
•
|
Total revenues increased
$10.6 billion
, or
8.9%
, to
$130.6 billion
in
2017
compared to
2016
. The increase was primarily due to growth in pharmacy network and specialty pharmacy volume as well as brand name drug price inflation, partially offset by continued price compression and increased generic dispensing.
|
•
|
As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s mail choice claims processed, on a 30-day equivalent basis, increased
5.4%
to
265.2 million
claims in
2017
compared to
251.5 million
claims in
2016
.
|
•
|
During
2017
, the Company’s average revenue per mail choice claim, on a 30-day equivalent basis, increased by 1.7% compared to
2016
. The increase was primarily due to growth in specialty pharmacy and brand name drug price inflation.
|
•
|
The Company’s pharmacy network claims processed, on a 30-day equivalent basis, increased
9.3%
to approximately
1.5 billion
claims in
2017
compared to approximately
1.4 billion
claims in
2016
. The increase was primarily due to increased volume from net new business.
|
•
|
During
2017
, the average revenue per pharmacy network claim processed remained flat on a 30-day equivalent basis.
|
•
|
The Company’s total generic dispensing rate increased to
87.0%
in
2017
compared to
85.9%
in
2016
. The increase in the Company’s generic dispensing rate was primarily due to the impact of new generic drug introductions, and the Company’s ongoing efforts to encourage plan members to use generic drugs when they are available and clinically appropriate.
|
•
|
Operating expenses increased
$68 million
, or
5.4%
, in
2017
compared to
2016
. The year over year increase in operating expenses was primarily due to an
$88 million
reversal of an accrual in connection with a legal settlement in 2016 and an increase in costs associated with the growth of the business. The increase was partially offset by the realization of partially reserved receivables in 2017 which reduced operating expenses.
|
•
|
Operating expenses as a percentage of revenues remained relatively consistent at
1.0%
and
1.1%
of revenues in
2017
and
2016
, respectively.
|
•
|
Operating income increased
$87 million
, or
1.9%
, to
$4.7 billion
in
2017
compared to
2016
. The increase in operating income was primarily due to growth in specialty pharmacy, higher generic dispensing and favorable purchasing economics, partially offset by price compression and the increased operating expenses described above.
|
|
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
Year Ended December 31,
|
|
2018 vs. 2017
|
|
2017 vs. 2016
|
||||||||||||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Products
|
$
|
83,175
|
|
|
$
|
78,522
|
|
|
$
|
80,275
|
|
|
$
|
4,653
|
|
|
5.9
|
%
|
|
$
|
(1,753
|
)
|
|
(2.2
|
)%
|
Services
|
814
|
|
|
876
|
|
|
825
|
|
|
(62
|
)
|
|
(7.1
|
)%
|
|
51
|
|
|
6.2
|
%
|
|||||
Total revenues
|
83,989
|
|
|
79,398
|
|
|
81,100
|
|
|
4,591
|
|
|
5.8
|
%
|
|
(1,702
|
)
|
|
(2.1
|
)%
|
|||||
Cost of products sold
(1)
|
59,906
|
|
|
56,066
|
|
|
57,339
|
|
|
3,840
|
|
|
6.8
|
%
|
|
(1,273
|
)
|
|
(2.2
|
)%
|
|||||
Operating expenses
(2)(3)(4)(5)(6)
|
23,463
|
|
|
16,774
|
|
|
16,324
|
|
|
6,689
|
|
|
39.9
|
%
|
|
450
|
|
|
2.8
|
%
|
|||||
Operating expenses % of revenues
|
27.9
|
%
|
|
21.1
|
%
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Operating income
(1)(2)(3)(4)(5)(6)
|
$
|
620
|
|
|
$
|
6,558
|
|
|
$
|
7,437
|
|
|
$
|
(5,938
|
)
|
|
(90.5
|
)%
|
|
$
|
(879
|
)
|
|
(11.8
|
)%
|
Operating income % of revenues
|
0.7
|
%
|
|
8.3
|
%
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Revenues (by major goods/service line):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy
|
$
|
64,179
|
|
|
$
|
59,528
|
|
|
$
|
60,838
|
|
|
$
|
4,651
|
|
|
7.8
|
%
|
|
$
|
(1,310
|
)
|
|
(2.2
|
)%
|
Front Store
|
19,055
|
|
|
18,769
|
|
|
19,123
|
|
|
286
|
|
|
1.5
|
%
|
|
(354
|
)
|
|
(1.9
|
)%
|
|||||
Other
|
755
|
|
|
1,101
|
|
|
1,139
|
|
|
(346
|
)
|
|
(31.4
|
)%
|
|
(38
|
)
|
|
(3.3
|
)%
|
|||||
Prescriptions filled
(7)
|
1,339.1
|
|
|
1,230.5
|
|
|
1,223.5
|
|
|
108.6
|
|
|
8.8
|
%
|
|
7.0
|
|
|
0.6
|
%
|
|||||
Revenue increase (decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total
|
5.8
|
%
|
|
(2.1
|
)%
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Pharmacy
|
7.8
|
%
|
|
(2.2
|
)%
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Front Store
|
1.5
|
%
|
|
(1.9
|
)%
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Total prescription volume
(7)
|
8.8
|
%
|
|
0.6
|
%
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Same store sales increase (decrease):
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total
|
6.0
|
%
|
|
(2.6
|
)%
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Pharmacy
|
7.9
|
%
|
|
(2.6
|
)%
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Front Store
|
0.5
|
%
|
|
(2.6
|
)%
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|||||||||
Prescription volume
(7)
|
9.1
|
%
|
|
0.4
|
%
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|||||||||
Generic dispensing rate
|
87.5
|
%
|
|
87.3
|
%
|
|
85.7
|
%
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cost of products sold and operating income for 2017 include $2 million of acquisition-related integration costs related to the acquisition of Omnicare.
|
(2)
|
Operating expenses and operating income in 2018, 2017 and 2016 include
$7 million
,
$32 million
and
$235 million
, respectively, of acquisition-related integration costs. In 2018 and
2017
, the integration costs related to the acquisition of Omnicare. In
2016
, the integration costs related to the acquisitions of Omnicare and the pharmacy and clinic businesses of Target.
|
(3)
|
Operating expenses and operating income for
2018
and
2017
include goodwill impairment charges of
$6.1 billion
related to the LTC reporting unit and
$181 million
related to the RxCrossroads reporting unit, respectively.
|
(4)
|
Operating expenses and operating income for
2017
and
2016
include
$215 million
and
$34 million
, respectively, of charges associated with store rationalization and asset impairment charges in connection with planned store closures related to the Company’s enterprise streamlining initiative.
|
(5)
|
Operating expenses and operating income for
2018
include a $43 million loss on impairment of long-lived assets primarily related to the impairment of property and equipment.
|
(6)
|
Operating expenses and operating income for 2018 include an $86 million loss on the divestiture of the Company’s RxCrossroads subsidiary.
|
(7)
|
Includes the adjustment to convert 90‑day, non-specialty prescriptions to the equivalent of three 30‑day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
|
(8)
|
Same store sales and prescription volume exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, LTC operations and commercialization services.
|
•
|
Total revenues increased approximately
$4.6 billion
, or
5.8%
, to
$84.0 billion
in
2018
compared to
2017
. The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and the impact of recent generic introductions.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
Front store same store sales increased
0.5%
in
2018
compared to
2017
. Front store sales in 2018 continued to benefit from increases in health product sales.
|
•
|
Pharmacy same store sales increased
7.9%
in
2018
compared to
2017
. The increase was driven by the
9.1%
increase in pharmacy same store prescription volumes on a 30-day equivalent basis due to (i) continued adoption of patient care programs, (ii) collaborations with PBMs, and (iii) the Company’s preferred status in a number of Medicare Part D networks during 2018. The increase was also due to the impact of year over year brand name drug price inflation that occurred primarily in the first three months of 2018.
|
•
|
Pharmacy revenue continues to be adversely affected by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. The generic dispensing rate grew to
87.5%
in
2018
compared to
87.3%
in
2017
. In addition, pharmacy revenue growth has also been negatively affected by continued reimbursement pressure.
|
•
|
2017 revenues include approximately $0.4 billion related to the Company’s RxCrossroads subsidiary which was sold on January 2, 2018.
|
•
|
Pharmacy revenue growth has been adversely affected by industry challenges in the LTC business, such as continuing lower occupancy rates at skilled nursing facilities, as well as the deteriorating financial health of many skilled nursing facilities which resulted in a number of customer bankruptcies in 2018.
|
•
|
Pharmacy revenue in 2018 continued to benefit from the Company’s ability to attract and retain managed care customers and the increased use of pharmaceuticals by an aging population as the first line of defense for health care.
|
•
|
Operating expenses in the Retail/LTC segment include store payroll, store employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.
|
•
|
Operating expenses increased
$6.7 billion
, or
39.9%
, in
2018
compared to
2017
. The increase in operating expenses in
2018
was primarily due to:
|
•
|
A goodwill impairment charge of
$6.1 billion
in
2018
in the LTC reporting unit (see
Note 5 ‘‘Goodwill and Other Intangibles’’
to the consolidated financial statements), as compared to a
$181 million
goodwill impairment charge in the RxCrossroads reporting unit recorded in 2017 in connection with the upcoming sale of RxCrossroads. See the discussion of goodwill under “Critical Accounting Policies” later in this document;
|
•
|
An
$86 million
pre-tax loss on the sale of the RxCrossroads subsidiary in 2018;
|
•
|
A
$43 million
impairment of long-lived assets in 2018; and
|
•
|
An increase in operating expenses due to (i) the investment of a portion of the savings from the TCJA in wages and benefits, (ii) increased prescription volume described previously, (iii) incremental costs associated with operating more stores and (iv) other investments in the business to drive revenue growth;
|
•
|
Partially offset by lower operating expenses as a result of a lack of charges associated with store closures in 2018, for which the Company incurred
$215 million
in connection with its enterprise streamlining initiative in 2017; and
|
•
|
A decrease in hurricane-related expenses of $25 million in
2018
compared to
2017
.
|
•
|
Operating expenses as a percentage of total revenues were
27.9%
in
2018
compared to
21.1%
in
2017
. The increase in operating expenses as a percentage of total revenues was driven by the increased goodwill impairment charges in 2018.
|
•
|
Operating income decreased
$5.9 billion
, or
90.5%
, to approximately
$620 million
in
2018
compared to
2017
. The decrease in operating income was driven primarily by the increased operating expenses described above.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s pharmacy operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Retail/LTC Segment. If the reimbursement pressure accelerates, the Company may not be able grow revenues, and its operating income could be adversely affected.
|
•
|
The increased use of generic drugs has positively impacted the Company’s operating income but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which the Company expects to continue, reduces the benefit the Company realizes from brand to generic product conversions.
|
•
|
Total revenues decreased approximately
$1.7 billion
, or
2.1%
, to
$79.4 billion
in
2017
compared to
2016
. The decrease was primarily due to a decline in same store sales as a result of the previously-announced marketplace changes that restrict CVS Pharmacy from participating in certain networks.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
Front store same store sales declined
2.6%
in
2017
compared to
2016
and were negatively impacted approximately 30 basis points due to the absence of leap day in
2017
. The decrease was primarily driven by softer customer traffic and efforts to rationalize promotional strategies, partially offset by an increase in basket size.
|
•
|
Pharmacy same store sales declined
2.6%
in
2017
compared to
2016
. Pharmacy same store sales were negatively impacted by approximately 390 basis points due to recent generic introductions. Same store prescription volumes increased
0.4%
, despite the approximately 420 basis point negative impact from previously-discussed marketplace changes that restrict CVS Pharmacy from participating in certain networks.
|
•
|
Pharmacy revenue continues to be negatively impacted by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. The generic dispensing rate grew to
87.3%
in
2017
compared to
85.7%
in
2016
. In addition, pharmacy revenue growth has also been negatively affected by the mix of drugs sold, continued reimbursement pressure and the lack of significant new brand name drug introductions.
|
•
|
Pharmacy revenue in 2017 continued to benefit from the Company’s ability to attract and retain managed care customers, and the increased use of pharmaceuticals by an aging population as the first line of defense for health care.
|
•
|
Operating expenses increased
$450 million
, or
2.8%
in
2017
. The increase in operating expenses in
2017
was due primarily to:
|
•
|
An increase of $181 million in charges associated with the closure of retail stores in connection with the Company’s enterprise streamlining initiative;
|
•
|
A goodwill impairment charge of $181 million related to the RxCrossroads reporting unit, which was subsequently sold on January 2, 2018;
|
•
|
Hurricane related costs of $55 million; and
|
•
|
Costs associated with new store openings
|
•
|
Operating expenses as a percentage of total revenues were
21.1%
in
2017
compared to
20.1%
in
2016
. The increase in
2017
was primarily due to a decline in expense leverage with the loss of business from the previously discussed marketplace changes that restrict CVS Pharmacy from participating in certain networks.
|
•
|
Operating income decreased
$879 million
, or
11.8%
, to approximately
$6.6 billion
in
2017
compared to
2016
. The decrease in operating income was driven primarily by the increased operating expenses described above and reimbursement pressure.
|
In millions
|
|
||
Revenues:
|
|
||
Products
|
$
|
164
|
|
Premiums
|
4,819
|
|
|
Services
|
521
|
|
|
Net investment income
|
45
|
|
|
Total revenues
|
5,549
|
|
|
Cost of products sold
|
147
|
|
|
Benefit costs
|
3,873
|
|
|
Operating expenses
|
1,253
|
|
|
Operating income
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|||
In thousands
|
Insured
|
|
ASC
(1)
|
|
Total
|
|||
Medical membership:
|
|
|
|
|
|
|||
Commercial
|
3,871
|
|
|
13,888
|
|
|
17,759
|
|
Medicare Advantage
|
1,758
|
|
|
—
|
|
|
1,758
|
|
Medicare Supplement
|
793
|
|
|
—
|
|
|
793
|
|
Medicaid
|
1,128
|
|
|
663
|
|
|
1,791
|
|
Total medical membership
|
7,550
|
|
|
14,551
|
|
|
22,101
|
|
|
|
|
|
|
|
(1)
|
Represents self-insured membership under Administrative Services Contracts.
|
•
|
Revenues in 2018 reflect (i) revenues associated with products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products, that were acquired in the Aetna Acquisition and (ii) interest income related to the $40 billion of senior notes issued on March 9, 2018 to partially fund the Aetna Acquisition.
|
•
|
Operating expenses within the Corporate/Other segment include executive management, corporate relations, legal, compliance, human resources, information technology, finance related costs and acquisition-related transaction and integration costs. After the Aetna Acquisition Date, such operating expenses also include operating costs to support the large case pensions and long-term care insurance products acquired in the Aetna Acquisition.
|
•
|
Operating expenses increased
$437 million
, or
45.9%
, in
2018
compared to
2017
. The increase was primarily driven by an increase in acquisition-related transaction and integration costs of $454 million in 2018.
|
•
|
Operating expenses within the Corporate/Other segment include executive management, corporate relations, legal, compliance, human resources, information technology, finance related costs and acquisition-related transaction and integration costs.
|
•
|
Operating expenses increased
$34 million
, or
3.7%
, in
2017
compared to
2016
. The increase was due to (i) ongoing investments in strategic initiatives, (ii) increased employee benefit costs and (iii) increased divestiture and acquisition-related costs, primarily related to $34 million of transaction costs in 2017 associated with the Aetna Acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
Change
|
||||||||||||||||||
|
Year Ended December 31,
|
|
2018 vs. 2017
|
|
2017 vs. 2016
|
||||||||||||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
|
$
|
|
%
|
|
$
|
|
%
|
||||||||||||
Net cash provided by operating activities
|
$
|
8,865
|
|
|
$
|
8,007
|
|
|
$
|
10,141
|
|
|
$
|
858
|
|
|
11
|
%
|
|
$
|
(2,134
|
)
|
|
(21
|
)%
|
Net cash used in investing activities
|
(43,285
|
)
|
|
(2,877
|
)
|
|
(2,470
|
)
|
|
(40,408
|
)
|
|
1,405
|
%
|
|
(407
|
)
|
|
16
|
%
|
|||||
Net cash provided by (used in) financing activities
|
36,819
|
|
|
(6,751
|
)
|
|
(6,761
|
)
|
|
43,570
|
|
|
(645
|
)%
|
|
10
|
|
|
—
|
%
|
|||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(4
|
)
|
|
1
|
|
|
2
|
|
|
(5
|
)
|
|
(500
|
)%
|
|
(1
|
)
|
|
(50
|
)%
|
|||||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
$
|
2,395
|
|
|
$
|
(1,620
|
)
|
|
$
|
912
|
|
|
$
|
4,015
|
|
|
(248
|
)%
|
|
$
|
(2,532
|
)
|
|
(278
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
Net cash provided by operating activities
increased by
$858 million
in
2018
due primarily to the timing of client payments and the timing of payments for the Company’s Medicare Part D operations.
|
•
|
Net cash used in investing activities
increased by
$40.4 billion
in
2018
largely driven by the Aetna Acquisition in November 2018. In addition, cash used in investing activities reflected the following activity:
|
•
|
Gross capital expenditures remained relatively consistent at approximately
$2.0 billion
and
$1.9 billion
in
2018
and
2017
, respectively. During
2018
, approximately
21%
of the Company’s total capital expenditures were for new store construction,
32%
were for store, fulfillment and support facilities expansion and improvements and
47%
were for technology and other corporate initiatives.
|
•
|
The Company did not complete any sale-leaseback transactions in
2018
compared to
$265 million
in
2017
. Under the sale-leaseback transactions, the properties generally are sold at net book value, which generally approximates fair value, and the resulting leases generally qualify and are accounted for as operating leases. The specific timing and amount of future sale-leaseback transactions will vary depending on future market conditions and other factors.
|
•
|
Net cash provided by financing activities
was
$36.8 billion
in
2018
compared to net cash used in financing activities of
$6.8 billion
in
2017
. The cash provided by financing activities in 2018 primarily related to long-term borrowings to partially fund the Aetna Acquisition.
|
•
|
Net cash provided by operating activities
decreased by
$2.1 billion
, in
2017
due primarily to the timing of payments for the Company’s Medicare Part D operations.
|
•
|
Net cash used in investing activities
increased by
$407 million
in
2017
largely driven by an increase in acquisition activity as compared to
2016
. In addition, cash used in investing activities reflected the following activity:
|
•
|
Gross capital expenditures in
2017
totaled approximately
$1.9 billion
, a decrease of
$306 million
compared to prior year. The decrease in
2017
capital expenditures is due to the Target integration being completed in 2016. During
2017
, approximately
25%
of the Company’s total capital expenditures were for new store construction,
30%
were for store, fulfillment and support facilities expansion and improvements and
45%
were for technology and other corporate initiatives.
|
•
|
Proceeds from sale-leaseback transactions totaled
$265 million
in
2017
compared to
$230 million
in
2016
.
|
•
|
Net cash used in financing activities
was
$6.8 billion
in both
2017
and
2016
as net borrowings and net payments to shareholders were relatively flat in both years.
|
|
|
|
|
|
|
|||
|
2018
|
|
2017
|
|
2016
|
|||
Total stores (beginning of year)
|
9,846
|
|
|
9,750
|
|
|
9,665
|
|
New and acquired stores
(2)
|
148
|
|
|
179
|
|
|
132
|
|
Closed stores
(2)
|
(27
|
)
|
|
(83
|
)
|
|
(47
|
)
|
Total stores (end of year)
|
9,967
|
|
|
9,846
|
|
|
9,750
|
|
Relocated stores
(2)
|
34
|
|
|
30
|
|
|
50
|
|
|
|
|
|
|
|
(1)
|
Includes retail drugstores, certain onsite pharmacy stores, retail specialty pharmacy stores and pharmacies within Target stores.
|
(2)
|
Relocated stores are not included in new and acquired stores or closed stores totals.
|
|
|
||
In millions
|
|
||
3.125% senior notes due March 2020
|
$
|
2,000
|
|
Floating rate notes due March 2020
|
1,000
|
|
|
3.35% senior notes due March 2021
|
3,000
|
|
|
Floating rate notes due March 2021
|
1,000
|
|
|
3.7% senior notes due March 2023
|
6,000
|
|
|
4.1% senior notes due March 2025
|
5,000
|
|
|
4.3% senior notes due March 2028
|
9,000
|
|
|
4.78% senior notes due March 2038
|
5,000
|
|
|
5.05% senior notes due March 2048
|
8,000
|
|
|
Total debt principal
|
$
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Payments Due by Period
|
||||||||||||||||||
In millions
|
Total
|
|
2019
|
|
2020 to 2021
|
|
2022 to 2023
|
|
Thereafter
|
||||||||||
Operating leases
|
$
|
27,980
|
|
|
$
|
2,690
|
|
|
$
|
4,943
|
|
|
$
|
4,343
|
|
|
$
|
16,004
|
|
Capital lease obligations
|
1,241
|
|
|
74
|
|
|
146
|
|
|
146
|
|
|
875
|
|
|||||
Contractual lease obligations with Target
(1)
|
2,074
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,074
|
|
|||||
Lease obligations for discontinued operations
|
12
|
|
|
4
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|||||
Long-term debt
|
72,903
|
|
|
1,242
|
|
|
16,150
|
|
|
12,699
|
|
|
42,812
|
|
|||||
Interest payments on long-term debt
(2)
|
37,949
|
|
|
3,061
|
|
|
5,595
|
|
|
4,594
|
|
|
24,699
|
|
|||||
Other long-term liabilities on the consolidated balance sheet
(3)
|
|
|
|
|
|
|
|
|
|
||||||||||
Future policy benefits
(4)
|
6,728
|
|
|
575
|
|
|
1,200
|
|
|
952
|
|
|
4,001
|
|
|||||
Unpaid claims
(4)
|
2,742
|
|
|
816
|
|
|
644
|
|
|
413
|
|
|
869
|
|
|||||
Policyholders’ funds
(4)(5)
|
1,266
|
|
|
632
|
|
|
127
|
|
|
86
|
|
|
421
|
|
|||||
Other liabilities
|
1,705
|
|
|
455
|
|
|
911
|
|
|
100
|
|
|
239
|
|
|||||
Total
|
$
|
154,600
|
|
|
$
|
9,549
|
|
|
$
|
29,724
|
|
|
$
|
23,333
|
|
|
$
|
91,994
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company leases pharmacy and clinic space from Target. See
Note 6 ‘‘Leases’’
to the consolidated financial statements for additional information regarding the lease arrangements with Target. Amounts related to the operating and capital leases with Target are reflected within the operating leases and capital lease obligations above. Amounts due after the remaining estimated economic lives of the buildings are reflected herein assuming equivalent stores continue to operate through the term of the arrangements.
|
(2)
|
Interest payments on long-term debt are calculated using outstanding balances and interest rates in effect on
December 31, 2018
.
|
(3)
|
Payments of other long-term liabilities exclude Separate Accounts liabilities of approximately
$3.9 billion
because these liabilities are supported by assets that are legally segregated and are not subject to claims that arise out of the Company’s business.
|
(4)
|
Total payments of future policy benefits, unpaid claims and policyholders’ funds include
$1.2 billion
,
$2.7 billion
and
$339 million
, respectively, of reserves for contracts subject to reinsurance. The Company expects the assuming reinsurance carrier to fund these obligations and has reflected these amounts as reinsurance recoverable assets on the consolidated balance sheets.
|
(5)
|
Customer funds associated with group life and health contracts of approximately
$2.3 billion
have been excluded from the table above because such funds may be used primarily at the customer’s discretion to offset future premiums and/or for refunds, and the timing of the related cash flows cannot be determined. Additionally, net unrealized capital gains on debt and equity securities supporting experience-rated products of
$10 million
, before tax, have been excluded from the table above.
|
In millions
|
|
||
Experience-rated products
|
$
|
1,063
|
|
Remaining products
|
17,191
|
|
|
Total investments
|
$
|
18,254
|
|
|
|
•
|
The fair value of long-term debt would decline by $3.9 billion ($4.9 billion pretax). Changes in the fair value of long-term debt do not impact financial condition or results of operations.
|
•
|
The theoretical reduction in the fair value of investment securities partially offset by the theoretical reduction in the fair value of interest rate sensitive liabilities would result in a net decline in fair value of $364 million ($461 million pretax) related to continuing non-experience-rated products. Reductions in the fair value of investment securities would be reflected as an unrealized loss in equity, as the Company classifies these securities as available for sale. The Company does not record liabilities at fair value.
|
•
|
Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments.
|
•
|
Revenues generated from prescription drugs sold by third party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations.
|
•
|
Risks to our brand and reputation, the Aetna Acquisition, data governance risks, effectiveness of our talent management and alignment of talent to our business needs, and potential changes in public policy, laws and regulations present overarching risks to our enterprise in 2019 and beyond.
|
•
|
Our brand and reputation are two of our most important assets; negative public perception of the industries in which we operate, or of our industries’ or our practices, can adversely affect our businesses, results of operations, cash flows and prospects.
|
•
|
Data governance failures can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ sensitive information is subject to complex regulations at multiple levels. We would be adversely affected if we or our business associates or other vendors fail to adequately protect members’, customers’ or other constituents’ sensitive information.
|
•
|
We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.
|
•
|
We are subject to potential changes in public policy, laws and regulations, including reform of the United States health care system, that can adversely affect the markets for our products and services and our businesses, operations, results of operations, cash flows and prospects.
|
•
|
Our enterprise strategy may not be an effective response to the changing dynamics in the industries in which we operate, or we may not be able to implement our strategy and related strategic projects.
|
•
|
Efforts to reduce reimbursement levels and alter health care financing practices could adversely affect our businesses.
|
•
|
Gross margins in the industries in which we operate may decline.
|
•
|
Our results of operations are affected by the health of the economy in general and in the geographies we serve.
|
•
|
We operate in a highly competitive business environment. Competitive and economic pressures may limit our ability to increase pricing to reflect higher costs or may force us to accept lower margins. If customers elect to self-insure, reduce benefits or adversely renegotiate or amend their agreements with us, our revenues and results of operations will be adversely affected. We may not be able to obtain appropriate pricing on new or renewal business.
|
•
|
We may lose clients and/or fail to win new business. If we fail to compete effectively in the geographies and product areas in which we operate, including maintaining or increasing membership in our Health Care Benefits segment, our results of operations, financial condition and cash flows could be materially and adversely affected.
|
•
|
We are exposed to risks relating to the solvency of our customers and of other insurers.
|
•
|
We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs that we purchase and sell.
|
•
|
We face risks related to the frequency and rate of the introduction and pricing of generic drugs and brand name prescription drug products.
|
•
|
Possible changes in industry pricing benchmarks and drug pricing generally can adversely affect our PBM business.
|
•
|
Product liability, product recall or personal injury issues could damage our reputation.
|
•
|
We face challenges in growing our Medicare Advantage and Medicare Part D membership.
|
•
|
We face challenges in growing our Medicaid membership, and expanding our Medicaid membership exposes us to additional risks.
|
•
|
A change in our Health Care Benefits product mix may adversely affect our profit margins.
|
•
|
We may not be able to accurately forecast health care and other benefit costs, which could adversely affect our Health Care Benefits segment’s results of operations. There can be no assurance that the future health care and other benefit costs of our Insured Health Care Benefits products will not exceed our projections.
|
•
|
A number of factors, many of which are beyond our control, contribute to rising health care and other benefit costs. If we are unable to satisfactorily manage our health care and other benefit costs, our Health Care Benefits segment’s results of operations and competitiveness will be adversely affected.
|
•
|
The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable. Any reserve, including a premium deficiency reserve, may be insufficient. If actual claims exceed our estimates, our results of operations could be materially adversely affected, and our ability to take timely corrective actions to limit future costs may be limited.
|
•
|
Extreme events, or the threat of extreme events, could materially increase our health care (including behavioral health) costs. We cannot predict whether or when any such events will occur.
|
•
|
Legislative and regulatory changes could create significant challenges to our Medicare Advantage and Medicare Part D revenues and results of operations, and proposed changes to these programs could create significant additional challenges.
|
•
|
We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, which would have an adverse effect on our revenues, MBRs and results of operations and could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes.
|
•
|
Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our results of operations.
|
•
|
Our business activities are highly regulated. Our Pharmacy Services, Medicare Advantage, Medicare Part D, Medicaid, dual eligible, dual eligible special needs plan, small group and certain other products are subject to particularly extensive and complex regulations. If we fail to comply with applicable laws and regulations, we could be subject to significant adverse regulatory actions or suffer brand and reputational harm which may have a material adverse effect on our businesses. Compliance with existing and future laws, regulations and/or judicial decisions may reduce our profitability and limit our growth.
|
•
|
If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to regulatory actions or litigation which could adversely affect our businesses, results of operations, cash flows and/or financial condition.
|
•
|
Our litigation and regulatory risk profile are changing as a result of the Aetna Acquisition and as we offer new products and services and expand in business areas beyond our historical core businesses of Retail/LTC and Pharmacy Services.
|
•
|
We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. These proceedings may be costly to defend, result in changes in our business practices, harm our brand and reputation and adversely affect our businesses and results of operations.
|
•
|
We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.
|
•
|
We are subject to retroactive adjustments to and/or withholding of certain premiums and fees, including as a result of CMS RADV audits. We generally rely on health care providers to appropriately code claim submissions and document their medical records. If these records do not appropriately support our risk adjusted premiums, we may be required to refund premium payments to CMS and/or pay fines and penalties under the False Claims Act.
|
•
|
Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues. The U.S. federal government and our other government customers may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, results of operations and cash flows. In addition, an extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on our businesses, results of operations and cash flows.
|
•
|
Our results of operations may be adversely affected by changes in laws and policies governing employers and by union organizing activity.
|
•
|
We must develop and maintain a relevant omni-channel experience for our retail customers.
|
•
|
We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services, including proprietary brands. If we fail to develop new products, differentiate our products from those of our competitors or demonstrate the value of our products to our customers and members, our ability to retain or grow our customer base may be adversely affected.
|
•
|
In order to be competitive in the increasingly consumer-oriented marketplace for our health care products and services, we will need to develop and deploy consumer-friendly products and services and make investments in consumer engagement, reduce our cost structure and compete successfully with new entrants into our businesses. If we are unsuccessful, our future growth and profitability may be adversely affected.
|
•
|
Our results of operations may be adversely affected if we are unable to contract with manufacturers, providers, suppliers and vendors on competitive terms and develop and maintain attractive networks with high quality providers.
|
•
|
If our service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation or regulatory action. This risk is particularly high in our Medicare, Medicaid, dual eligible and dual eligible special needs plan programs.
|
•
|
Continuing consolidation and integration among providers and other suppliers may increase our medical and other covered benefits costs, make it difficult for us to compete in certain geographies and create new competitors.
|
•
|
We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members.
|
•
|
Customers, particularly large sophisticated customers, expect us to implement their contracts and onboard their employees and members efficiently and effectively. Failure to do so could adversely affect our reputation, businesses, results of operations, cash flows and prospects. If we or our vendors fail to provide our customers with quality service that meets their expectations, our ability to retain and grow our membership and customer base will be adversely affected.
|
•
|
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and disrupt our business operations.
|
•
|
Our and our vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt our operations or otherwise adversely affect our performance and results of operations.
|
•
|
We and our vendors have experienced cyber attacks. We can provide no assurance that we or our vendors will be able to detect, prevent or contain the effects of such attacks or other information security (including cybersecurity) risks or threats in the future.
|
•
|
The failure or disruption of our information technology systems or the failure of our information technology infrastructure to support our businesses could adversely affect our reputation, businesses, results of operations and cash flows.
|
•
|
Our business success and results of operations depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging.
|
•
|
Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. New distribution channels create new disintermediation risk. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products.
|
•
|
We also face other risks that could adversely affect our businesses, results of operations, financial condition and/or cash flows, which include:
|
•
|
Failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization;
|
•
|
Inappropriate application of accounting principles or a significant failure of internal control over financial reporting, which could lead to a restatement of our results of operations and/or a deterioration in the soundness and accuracy of our reported results of operations; and
|
•
|
Failure to adequately manage our run-off businesses and/or our regulatory and financial exposure to businesses we have sold, including Aetna’s divested standalone Medicare Part D, domestic group life insurance, group disability insurance and absence management businesses.
|
•
|
Goodwill and other intangible assets could, in the future, become impaired.
|
•
|
We would be adversely affected if we do not effectively deploy our capital. Downgrades or potential downgrades in our credit ratings, should they occur, could adversely affect our brand and reputation, businesses, cash flows, financial condition and results of operations.
|
•
|
Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative investments and other investments, our results of operations and/or our financial condition.
|
•
|
We have limited experience in the insurance and managed health care industry, which may hinder our ability to achieve our objectives as a combined company.
|
•
|
The Aetna Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may adversely affect our stock price.
|
•
|
We may fail to successfully combine the businesses and operations of CVS Health and Aetna to realize the anticipated benefits and cost savings of the Aetna Acquisition within the anticipated timeframe or at all, which could adversely affect our stock price.
|
•
|
Our future results may be adversely impacted if we do not effectively manage our expanded operations following completion of the Aetna Acquisition.
|
•
|
We may have difficulty attracting, motivating and retaining executives and other key employees following completion of the Aetna Acquisition.
|
•
|
The Aetna integration process could disrupt our ongoing businesses and/or operations.
|
•
|
Our indebtedness following completion of the Aetna Acquisition is substantially greater than our indebtedness on a stand-alone basis and greater than the combined indebtedness of CVS Health and Aetna existing prior to the announcement of the transaction. This increased level of indebtedness could adversely affect our business flexibility and increase our borrowing costs.
|
•
|
We will continue to incur significant integration-related costs in connection with the Aetna Acquisition.
|
•
|
We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things.
|
•
|
We may be unable to successfully integrate companies we acquire.
|
•
|
As a result of our expanded international operations, we face political, legal and compliance, operational, regulatory, economic and other risks that we do not face or are more significant than in our domestic operations.
|
|
For the Years Ended December 31,
|
||||||||||
In millions, except per share amounts
|
2018
|
|
2017
|
|
2016
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Products
|
$
|
183,910
|
|
|
$
|
180,063
|
|
|
$
|
173,377
|
|
Premiums
|
8,184
|
|
|
3,558
|
|
|
3,069
|
|
|||
Services
|
1,825
|
|
|
1,144
|
|
|
1,080
|
|
|||
Net investment income
|
660
|
|
|
21
|
|
|
20
|
|
|||
Total revenues
|
194,579
|
|
|
184,786
|
|
|
177,546
|
|
|||
Operating costs:
|
|
|
|
|
|
||||||
Cost of products sold
|
156,447
|
|
|
153,448
|
|
|
146,533
|
|
|||
Benefit costs
|
6,594
|
|
|
2,810
|
|
|
2,179
|
|
|||
Goodwill impairments
|
6,149
|
|
|
181
|
|
|
—
|
|
|||
Operating expenses
|
21,368
|
|
|
18,809
|
|
|
18,448
|
|
|||
Total operating costs
|
190,558
|
|
|
175,248
|
|
|
167,160
|
|
|||
Operating income
|
4,021
|
|
|
9,538
|
|
|
10,386
|
|
|||
Interest expense
|
2,619
|
|
|
1,062
|
|
|
1,078
|
|
|||
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
643
|
|
|||
Other expense (income)
|
(4
|
)
|
|
208
|
|
|
28
|
|
|||
Income before income tax provision
|
1,406
|
|
|
8,268
|
|
|
8,637
|
|
|||
Income tax provision
|
2,002
|
|
|
1,637
|
|
|
3,317
|
|
|||
Income (loss) from continuing operations
|
(596
|
)
|
|
6,631
|
|
|
5,320
|
|
|||
Loss from discontinued operations, net of tax
|
—
|
|
|
(8
|
)
|
|
(1
|
)
|
|||
Net income (loss)
|
(596
|
)
|
|
6,623
|
|
|
5,319
|
|
|||
Net (income) loss attributable to noncontrolling interests
|
2
|
|
|
(1
|
)
|
|
(2
|
)
|
|||
Net income (loss) attributable to CVS Health
|
$
|
(594
|
)
|
|
$
|
6,622
|
|
|
$
|
5,317
|
|
|
|
|
|
|
|
||||||
Basic earnings (loss) per share:
|
|
|
|
|
|
||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.48
|
|
|
$
|
4.93
|
|
Loss from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.47
|
|
|
$
|
4.93
|
|
Weighted average basic shares outstanding
|
1,044
|
|
|
1,020
|
|
|
1,073
|
|
|||
Diluted earnings (loss) per share:
|
|
|
|
|
|
||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.45
|
|
|
$
|
4.91
|
|
Loss from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.44
|
|
|
$
|
4.90
|
|
Weighted average diluted shares outstanding
|
1,044
|
|
|
1,024
|
|
|
1,079
|
|
|||
Dividends declared per share
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
For the Years Ended December 31,
|
||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Net income (loss)
|
$
|
(596
|
)
|
|
$
|
6,623
|
|
|
$
|
5,319
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
||||||
Net unrealized investment gains
|
97
|
|
|
—
|
|
|
—
|
|
|||
Foreign currency translation adjustments
|
(29
|
)
|
|
(2
|
)
|
|
38
|
|
|||
Net cash flow hedges
|
330
|
|
|
(10
|
)
|
|
2
|
|
|||
Pension and other postretirement benefits
|
(124
|
)
|
|
152
|
|
|
13
|
|
|||
Other comprehensive income
|
274
|
|
|
140
|
|
|
53
|
|
|||
Comprehensive income (loss)
|
(322
|
)
|
|
6,763
|
|
|
5,372
|
|
|||
Comprehensive (income) loss attributable to noncontrolling interests
|
2
|
|
|
(1
|
)
|
|
(2
|
)
|
|||
Comprehensive income (loss) attributable to CVS Health
|
$
|
(320
|
)
|
|
$
|
6,762
|
|
|
$
|
5,370
|
|
|
|
|
|
|
|
|
At December 31,
|
||||||
In millions, except per share amounts
|
2018
|
|
2017
|
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
4,059
|
|
|
$
|
1,696
|
|
Investments
|
2,522
|
|
|
111
|
|
||
Accounts receivable, net
|
17,631
|
|
|
13,181
|
|
||
Inventories
|
16,450
|
|
|
15,296
|
|
||
Other current assets
|
4,581
|
|
|
945
|
|
||
Total current assets
|
45,243
|
|
|
31,229
|
|
||
Long-term investments
|
15,732
|
|
|
112
|
|
||
Property and equipment, net
|
11,349
|
|
|
10,292
|
|
||
Goodwill
|
78,678
|
|
|
38,451
|
|
||
Intangible assets, net
|
36,524
|
|
|
13,630
|
|
||
Separate accounts assets
|
3,884
|
|
|
—
|
|
||
Other assets
|
5,046
|
|
|
1,417
|
|
||
Total assets
|
$
|
196,456
|
|
|
$
|
95,131
|
|
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
8,925
|
|
|
$
|
8,863
|
|
Pharmacy claims and discounts payable
|
12,302
|
|
|
10,355
|
|
||
Health care costs payable
|
5,210
|
|
|
5
|
|
||
Policyholders’ funds
|
2,939
|
|
|
—
|
|
||
Accrued expenses
|
10,711
|
|
|
6,581
|
|
||
Other insurance liabilities
|
1,937
|
|
|
23
|
|
||
Short-term debt
|
720
|
|
|
1,276
|
|
||
Current portion of long-term debt
|
1,265
|
|
|
3,545
|
|
||
Total current liabilities
|
44,009
|
|
|
30,648
|
|
||
Long-term debt
|
71,444
|
|
|
22,181
|
|
||
Deferred income taxes
|
7,677
|
|
|
2,996
|
|
||
Separate accounts liabilities
|
3,884
|
|
|
—
|
|
||
Other long-term insurance liabilities
|
8,119
|
|
|
334
|
|
||
Other long-term liabilities
|
2,780
|
|
|
1,277
|
|
||
Total liabilities
|
137,913
|
|
|
57,436
|
|
||
Commitments and contingencies (Note 16)
|
|
|
|
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
|
|||
CVS Health shareholders’ equity:
|
|
|
|
||||
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01: 3,200 shares authorized; 1,720 shares issued and 1,295 shares outstanding at December 31, 2018 and 1,712 shares issued and 1,014 shares outstanding at December 31, 2017 and capital surplus
|
45,440
|
|
|
32,096
|
|
||
Treasury stock, at cost: 425 shares at December 31, 2018 and 698 shares at December 31, 2017
|
(28,228
|
)
|
|
(37,796
|
)
|
||
Retained earnings
|
40,911
|
|
|
43,556
|
|
||
Accumulated other comprehensive income (loss)
|
102
|
|
|
(165
|
)
|
||
Total CVS Health shareholders’ equity
|
58,225
|
|
|
37,691
|
|
||
Noncontrolling interests
|
318
|
|
|
4
|
|
||
Total shareholders’ equity
|
58,543
|
|
|
37,695
|
|
||
Total liabilities and shareholders’ equity
|
$
|
196,456
|
|
|
$
|
95,131
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Cash receipts from customers
|
$
|
186,519
|
|
|
$
|
176,594
|
|
|
$
|
172,310
|
|
Cash paid for inventory and prescriptions dispensed by retail network pharmacies
|
(148,821
|
)
|
|
(146,469
|
)
|
|
(140,312
|
)
|
|||
Insurance benefits paid
|
(7,057
|
)
|
|
(2,810
|
)
|
|
(2,199
|
)
|
|||
Cash paid to other suppliers and employees
|
(17,234
|
)
|
|
(15,348
|
)
|
|
(15,478
|
)
|
|||
Interest and investment income received
|
644
|
|
|
21
|
|
|
20
|
|
|||
Interest paid
|
(2,803
|
)
|
|
(1,072
|
)
|
|
(1,140
|
)
|
|||
Income taxes paid
|
(2,383
|
)
|
|
(2,909
|
)
|
|
(3,060
|
)
|
|||
Net cash provided by operating activities
|
8,865
|
|
|
8,007
|
|
|
10,141
|
|
|||
|
|
|
|
|
|
||||||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from sales and maturities of investments
|
817
|
|
|
61
|
|
|
91
|
|
|||
Purchases of investments
|
(692
|
)
|
|
(137
|
)
|
|
(80
|
)
|
|||
Purchases of property and equipment
|
(2,037
|
)
|
|
(1,918
|
)
|
|
(2,224
|
)
|
|||
Proceeds from sale-leaseback transactions
|
—
|
|
|
265
|
|
|
230
|
|
|||
Acquisitions (net of cash acquired)
|
(42,226
|
)
|
|
(1,181
|
)
|
|
(524
|
)
|
|||
Proceeds from sale of subsidiary and other assets
|
832
|
|
|
—
|
|
|
—
|
|
|||
Other
|
21
|
|
|
33
|
|
|
37
|
|
|||
Net cash used in investing activities
|
(43,285
|
)
|
|
(2,877
|
)
|
|
(2,470
|
)
|
|||
|
|
|
|
|
|
||||||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Net repayments of short-term debt
|
(556
|
)
|
|
(598
|
)
|
|
1,874
|
|
|||
Proceeds from issuance of long-term debt
|
44,343
|
|
|
—
|
|
|
3,455
|
|
|||
Repayments of long-term debt
|
(5,522
|
)
|
|
—
|
|
|
(5,943
|
)
|
|||
Purchase of noncontrolling interest in subsidiary
|
—
|
|
|
—
|
|
|
(39
|
)
|
|||
Payment of contingent consideration
|
—
|
|
|
—
|
|
|
(26
|
)
|
|||
Derivative settlements
|
446
|
|
|
—
|
|
|
—
|
|
|||
Repurchase of common stock
|
—
|
|
|
(4,361
|
)
|
|
(4,461
|
)
|
|||
Dividends paid
|
(2,038
|
)
|
|
(2,049
|
)
|
|
(1,840
|
)
|
|||
Proceeds from exercise of stock options
|
242
|
|
|
329
|
|
|
296
|
|
|||
Payments for taxes related to net share settlement of equity awards
|
(97
|
)
|
|
(71
|
)
|
|
(72
|
)
|
|||
Other
|
1
|
|
|
(1
|
)
|
|
(5
|
)
|
|||
Net cash provided by (used in) financing activities
|
36,819
|
|
|
(6,751
|
)
|
|
(6,761
|
)
|
|||
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(4
|
)
|
|
1
|
|
|
2
|
|
|||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
2,395
|
|
|
(1,620
|
)
|
|
912
|
|
|||
Cash, cash equivalents and restricted cash at the beginning of the period
|
1,900
|
|
|
3,520
|
|
|
2,608
|
|
|||
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
4,295
|
|
|
$
|
1,900
|
|
|
$
|
3,520
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Reconciliation of net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(596
|
)
|
|
$
|
6,623
|
|
|
$
|
5,319
|
|
Adjustments required to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
2,718
|
|
|
2,479
|
|
|
2,475
|
|
|||
Goodwill impairments
|
6,149
|
|
|
181
|
|
|
—
|
|
|||
Losses on settlements of defined benefit pension plans
|
—
|
|
|
187
|
|
|
—
|
|
|||
Stock-based compensation
|
280
|
|
|
234
|
|
|
222
|
|
|||
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
643
|
|
|||
Deferred income taxes
|
87
|
|
|
(1,334
|
)
|
|
18
|
|
|||
Other noncash items
|
339
|
|
|
53
|
|
|
135
|
|
|||
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
||||||
Accounts receivable, net
|
(1,139
|
)
|
|
(941
|
)
|
|
(243
|
)
|
|||
Inventories
|
(1,153
|
)
|
|
(514
|
)
|
|
(742
|
)
|
|||
Other assets
|
(3
|
)
|
|
(338
|
)
|
|
(8
|
)
|
|||
Accounts payable and pharmacy claims and discounts payable
|
2,489
|
|
|
1,710
|
|
|
2,189
|
|
|||
Health care costs payable and other insurance liabilities
|
(471
|
)
|
|
—
|
|
|
(19
|
)
|
|||
Other liabilities
|
165
|
|
|
(333
|
)
|
|
152
|
|
|||
Net cash provided by operating activities
|
$
|
8,865
|
|
|
$
|
8,007
|
|
|
$
|
10,141
|
|
|
Number of shares outstanding
|
|
Attributable to CVS Health
|
|
|
|||||||||||||||||||||
|
|
|
|
Common
|
|
|
Accumulated
|
Total
|
|
|
||||||||||||||||
|
|
|
|
Stock and
|
|
|
Other
|
CVS Health
|
Non
|
|
||||||||||||||||
|
Common
|
Treasury
|
|
Capital
|
Treasury
|
Retained
|
Comprehensive
|
Shareholders’
|
Controlling
|
Total
|
||||||||||||||||
In millions
|
Shares
|
Shares
(1)
|
|
Surplus
(2)
|
Stock
(1)
|
Earnings
|
Income (Loss)
|
Equity
|
Interests
|
Equity
|
||||||||||||||||
Balance at December 31, 2015
|
1,699
|
|
(598
|
)
|
|
$
|
30,965
|
|
$
|
(28,917
|
)
|
$
|
35,506
|
|
$
|
(358
|
)
|
$
|
37,196
|
|
$
|
7
|
|
$
|
37,203
|
|
Net income
(3)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
5,317
|
|
—
|
|
5,317
|
|
1
|
|
5,318
|
|
|||||||
Other comprehensive income (Note 13)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
53
|
|
53
|
|
—
|
|
53
|
|
|||||||
Stock option activity, stock awards, related tax benefits and other
|
6
|
|
—
|
|
|
525
|
|
—
|
|
—
|
|
—
|
|
525
|
|
—
|
|
525
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
(46
|
)
|
|
145
|
|
(4,566
|
)
|
—
|
|
—
|
|
(4,421
|
)
|
—
|
|
(4,421
|
)
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(1,840
|
)
|
—
|
|
(1,840
|
)
|
—
|
|
(1,840
|
)
|
|||||||
Other decreases in noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
(4
|
)
|
|||||||
Balance at December 31, 2016
|
1,705
|
|
(644
|
)
|
|
31,635
|
|
(33,483
|
)
|
38,983
|
|
(305
|
)
|
36,830
|
|
4
|
|
36,834
|
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
6,622
|
|
—
|
|
6,622
|
|
1
|
|
6,623
|
|
|||||||
Other comprehensive income (Note 13)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
140
|
|
140
|
|
—
|
|
140
|
|
|||||||
Stock option activity, stock awards and other
|
7
|
|
—
|
|
|
461
|
|
—
|
|
—
|
|
—
|
|
461
|
|
—
|
|
461
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
(54
|
)
|
|
—
|
|
(4,313
|
)
|
—
|
|
—
|
|
(4,313
|
)
|
—
|
|
(4,313
|
)
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2,049
|
)
|
—
|
|
(2,049
|
)
|
—
|
|
(2,049
|
)
|
|||||||
Other decreases in noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1
|
)
|
(1
|
)
|
|||||||
Balance at December 31, 2017
|
1,712
|
|
(698
|
)
|
|
32,096
|
|
(37,796
|
)
|
43,556
|
|
(165
|
)
|
37,691
|
|
4
|
|
37,695
|
|
|||||||
Adoption of new accounting standards (Note 1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(6
|
)
|
(7
|
)
|
(13
|
)
|
—
|
|
(13
|
)
|
|||||||
Net loss
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(594
|
)
|
—
|
|
(594
|
)
|
(2
|
)
|
(596
|
)
|
|||||||
Other comprehensive income (Note 13)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
274
|
|
274
|
|
—
|
|
274
|
|
|||||||
Common shares issued to acquire Aetna
|
—
|
|
274
|
|
|
12,923
|
|
9,561
|
|
—
|
|
—
|
|
22,484
|
|
—
|
|
22,484
|
|
|||||||
Stock option activity, stock awards and other
|
8
|
|
—
|
|
|
421
|
|
—
|
|
—
|
|
—
|
|
421
|
|
—
|
|
421
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
(1
|
)
|
|
—
|
|
7
|
|
—
|
|
—
|
|
7
|
|
—
|
|
7
|
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2,045
|
)
|
—
|
|
(2,045
|
)
|
—
|
|
(2,045
|
)
|
|||||||
Other decreases in noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(13
|
)
|
(13
|
)
|
|||||||
Acquisition of noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
329
|
|
329
|
|
|||||||
Balance at December 31, 2018
|
1,720
|
|
(425
|
)
|
|
$
|
45,440
|
|
$
|
(28,228
|
)
|
$
|
40,911
|
|
$
|
102
|
|
$
|
58,225
|
|
$
|
318
|
|
$
|
58,543
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Treasury shares include
1 million
shares held in trust for each of the years ended December 31, 2018, 2017 and 2016. Treasury stock includes
$29 million
related to shares held in trust for the year ended December 31, 2018 and
$31 million
related to shares held in trust for each of the years ended December 31, 2017 and 2016. See
Note 1 ‘‘Significant Accounting Policies’’
for additional information.
|
(2)
|
Common stock and capital surplus includes the par value of common stock of
$17 million
as of December 31, 2018, 2017 and 2016.
|
(3)
|
Net income attributable to noncontrolling interests for the year ended December 31, 2016 excludes
$1 million
attributable to a redeemable noncontrolling interest. See
Note 1 ‘‘Significant Accounting Policies’’
for additional information.
|
1.
|
Significant Accounting Policies
|
•
|
Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments; and
|
•
|
Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.
|
•
|
Private equity and hedge fund limited partnerships are accounted for using the equity method of accounting. Under this method, the carrying value of the investments are based on the value of the Company’s equity ownership of the underlying investment funds provided by the general partner or manager of the investments, the financial statements of which generally are audited. As a result of the timing of the receipt of the valuation information provided by the fund managers, these investments are generally reported on up to a three month lag. The Company reviews investments for impairment at least quarterly and monitors their performance throughout the year through discussions with the administrators, managers and/or general partners. If the Company becomes aware of an impairment of a limited partnership’s investments through its review or prior to receiving the limited partnership’s financial statements at the financial statement date, an impairment will be recognized by recording a reduction in the carrying value of the limited partnership with a corresponding charge to net investment income.
|
•
|
Investment real estate, which is carried on the consolidated balance sheets at depreciated cost, including capital additions, net of write-downs for other-than-temporary declines in fair value. Depreciation is calculated using the straight-line method based on the estimated useful life of each asset. If any real estate investment is considered held-for-sale, it is carried at the lower of its carrying value or fair value less estimated selling costs. The Company generally estimates fair value using a discounted future cash flow analysis in conjunction with comparable sales information. At the time of the sale, the difference between the sales price and the carrying value is recorded as a realized capital gain or loss.
|
•
|
Privately-placed equity securities, which are carried on the consolidated balance sheets at cost less impairments, plus or minus subsequent adjustments for observable price changes. Additionally, as a member of the Federal Home Loan Bank of Boston (“FHLBB”), a subsidiary of the Company is required to purchase and hold shares of the FHLBB. These shares are restricted and carried at cost.
|
In millions
|
2018
|
|
2017
|
||||
Trade receivables
|
$
|
6,896
|
|
|
$
|
7,895
|
|
Vendor and manufacturer receivables
|
7,655
|
|
|
5,109
|
|
||
Premium receivables
|
2,259
|
|
|
31
|
|
||
Other receivables
|
821
|
|
|
146
|
|
||
Total accounts receivable, net
|
$
|
17,631
|
|
|
$
|
13,181
|
|
|
|
|
|
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Beginning balance
|
$
|
307
|
|
|
$
|
286
|
|
|
$
|
161
|
|
Additions charged to bad debt expense
|
256
|
|
|
177
|
|
|
221
|
|
|||
Write-offs charged to allowance
|
(70
|
)
|
|
(156
|
)
|
|
(96
|
)
|
|||
Ending balance
|
$
|
493
|
|
|
$
|
307
|
|
|
$
|
286
|
|
|
|
|
|
|
|
In millions
|
2018
|
|
2017
|
||||
Land
|
$
|
1,872
|
|
|
$
|
1,707
|
|
Building and improvements
|
3,785
|
|
|
3,343
|
|
||
Fixtures and equipment
|
13,028
|
|
|
11,963
|
|
||
Leashold improvements
|
5,384
|
|
|
4,793
|
|
||
Software
|
2,800
|
|
|
2,484
|
|
||
Total property and equipment
|
26,869
|
|
|
24,290
|
|
||
Accumulated depreciation and amortization
|
(15,520
|
)
|
|
(13,998
|
)
|
||
Property and equipment, net
|
$
|
11,349
|
|
|
$
|
10,292
|
|
|
|
|
|
In millions
|
2018
|
|
2017
|
||||
Property and equipment under capital leases
|
$
|
582
|
|
|
$
|
588
|
|
Accumulated amortization of property and equipment under capital leases
|
(163
|
)
|
|
(140
|
)
|
||
Property and equipment under capital leases, net
|
$
|
419
|
|
|
$
|
448
|
|
|
|
|
|
In millions
|
|
||
Beginning balance
|
$
|
39
|
|
Net income attributable to noncontrolling interest
|
1
|
|
|
Distributions
|
(2
|
)
|
|
Purchase of noncontrolling interest
|
(39
|
)
|
|
Reclassification to capital surplus in connection with purchase of noncontrolling interest
|
1
|
|
|
Ending balance
|
$
|
—
|
|
|
|
•
|
Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments.
|
•
|
Revenues generated from prescription drugs sold by third party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations.
|
•
|
ASC fees are received in exchange for performing certain claim processing and member services for HCBS’ ASC medical members. ASC fee revenue is recognized over the period the service is provided. Some of the administrative services contracts include guarantees with respect to certain functions, such as customer service response time, claim processing accuracy and claim processing turnaround time, as well as certain guarantees that a plan sponsor’s benefit claim experience will fall within a certain range. With any of these guarantees, HCBS is financially at risk if the conditions of the arrangements are not met, although the maximum amount at risk is typically limited to a percentage of the fees otherwise payable to the Company by the customer involved. Each period HCBS estimates obligations under the terms of these guarantees and records its estimate as an offset to service revenues.
|
•
|
Workers’ compensation administrative services consist of fee-based managed care services. Workers’ compensation administrative services revenue is recognized once the service is provided.
|
•
|
Specialty and home delivery pharmacy product revenue is recognized when the prescription is delivered to an ASC member. Specialty and home delivery pharmacy product revenue reflects the price of the prescription on a gross basis (ASC member co-payments and plan sponsor reimbursements).
|
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||||
Major goods/services lines:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy
|
$
|
130,195
|
|
|
$
|
64,179
|
|
|
$
|
164
|
|
|
$
|
—
|
|
|
$
|
(29,693
|
)
|
|
$
|
164,845
|
|
Front Store
|
—
|
|
|
19,055
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,055
|
|
||||||
Premiums
|
3,361
|
|
|
—
|
|
|
4,819
|
|
|
4
|
|
|
—
|
|
|
8,184
|
|
||||||
Net investment income
|
13
|
|
|
—
|
|
|
45
|
|
|
602
|
|
|
—
|
|
|
660
|
|
||||||
Other
|
559
|
|
|
755
|
|
|
521
|
|
|
—
|
|
|
—
|
|
|
1,835
|
|
||||||
Total
|
$
|
134,128
|
|
|
$
|
83,989
|
|
|
$
|
5,549
|
|
|
$
|
606
|
|
|
$
|
(29,693
|
)
|
|
$
|
194,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy Services distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mail choice
(1)
|
$
|
46,934
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Pharmacy network
(2)
|
83,261
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other
|
3,933
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
$
|
134,128
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect
®
claims picked up at a CVS Pharmacy retail store, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice
®
program, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.
|
(2)
|
Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice activity, which is included within the mail choice category.
|
|
|
|
|
||||
In millions
|
2018
|
|
2017
|
||||
Trade receivables (included in accounts receivable, net)
|
$
|
6,896
|
|
|
$
|
7,895
|
|
Contract liabilities (included in accrued expenses)
|
67
|
|
|
53
|
|
||
|
|
|
|
|
|
||
In millions
|
|
||
Balance at December 31, 2017
|
$
|
53
|
|
Adoption of ASU 2014-09
|
17
|
|
|
Loyalty program earnings and gift card issuances
|
332
|
|
|
Redemption and breakage
|
(335
|
)
|
|
Balance at December 31, 2018
|
$
|
67
|
|
|
|
•
|
Hedge fund and private equity investments
- The Company invests in hedge fund and private equity investments in order to generate investment returns for its investment portfolio supporting its insurance businesses.
|
•
|
Real estate partnerships
- The Company invests in various real estate partnerships, including those that construct, own and manage low-income housing developments. For the low income housing development investments, substantially all of the projected benefits to the Company are from tax credits and other tax benefits.
|
In millions
|
|
||
Hedge fund investments
|
$
|
270
|
|
Private equity investments
|
524
|
|
|
Real estate partnerships
|
275
|
|
|
Total
|
$
|
1,069
|
|
|
|
In millions
|
2017
|
|
2016
|
||||
Loss from discontinued operations
|
$
|
(13
|
)
|
|
$
|
(2
|
)
|
Income tax benefit
|
5
|
|
|
1
|
|
||
Loss from discontinued operations, net of tax
|
$
|
(8
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
Impact of Change in Accounting Policy
|
||||||||||
|
As Reported
|
|
|
|
Adjusted
|
||||||
In millions
|
December 31, 2017
|
|
Adjustments
|
|
January 1, 2018
|
||||||
Consolidated Balance Sheet:
|
|
|
|
|
|
||||||
Accrued expenses
|
$
|
6,581
|
|
|
$
|
17
|
|
|
$
|
6,598
|
|
Deferred income taxes
|
2,996
|
|
|
(4
|
)
|
|
2,992
|
|
|||
Total liabilities
|
57,436
|
|
|
13
|
|
|
57,449
|
|
|||
Retained earnings
|
43,556
|
|
|
(13
|
)
|
|
43,543
|
|
|||
Total CVS Health shareholders’ equity
|
37,691
|
|
|
(13
|
)
|
|
37,678
|
|
|||
Total shareholders’ equity
|
37,695
|
|
|
(13
|
)
|
|
37,682
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Cash and cash equivalents
|
$
|
4,059
|
|
|
$
|
1,696
|
|
|
$
|
3,371
|
|
Restricted cash (included in other current assets)
|
6
|
|
|
14
|
|
|
—
|
|
|||
Restricted cash (included in other assets)
|
230
|
|
|
190
|
|
|
149
|
|
|||
Total cash, cash equivalents and restricted cash at the end of the period in the statement of cash flows
|
$
|
4,295
|
|
|
$
|
1,900
|
|
|
$
|
3,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
As Previously
|
|
|
|
|
||||||
In millions
|
Reported
|
|
Adjustments
|
|
As Revised
|
||||||
Year Ended December 31, 2017
|
|
|
|
|
|
||||||
Acquisitions (net of cash acquired)
|
$
|
(1,236
|
)
|
|
$
|
55
|
|
|
$
|
(1,181
|
)
|
Net cash used in investing activities
|
(2,932
|
)
|
|
55
|
|
|
(2,877
|
)
|
|||
Net decrease in cash, cash equivalents and restricted cash
(1)
|
(1,675
|
)
|
|
55
|
|
|
(1,620
|
)
|
|||
Cash, cash equivalents and restricted cash at the beginning of the period
(1)
|
3,371
|
|
|
149
|
|
|
3,520
|
|
|||
Cash, cash equivalents and restricted cash at the end of the period
(1)
|
1,696
|
|
|
204
|
|
|
1,900
|
|
|||
|
|
|
|
|
|
||||||
Year Ended December 31, 2016
|
|
|
|
|
|
||||||
Acquisitions (net of cash acquired)
|
(524
|
)
|
|
—
|
|
|
(524
|
)
|
|||
Net cash used in investing activities
|
(2,470
|
)
|
|
—
|
|
|
(2,470
|
)
|
|||
Net decrease in cash, cash equivalents and restricted cash
(1)
|
912
|
|
|
—
|
|
|
912
|
|
|||
Cash, cash equivalents and restricted cash at the beginning of the period
(1)
|
2,459
|
|
|
149
|
|
|
2,608
|
|
|||
Cash, cash equivalents and restricted cash at the end of the period
(1)
|
3,371
|
|
|
149
|
|
|
3,520
|
|
|||
|
|
|
|
|
|
(1)
|
Prior to the adoption of ASU 2016-18, these financial statement captions excluded restricted cash. The financial statement captions have been renamed to reflect the inclusion of restricted cash subsequent to the adoption of ASU 2016-18 on January 1, 2018.
|
2.
|
Acquisition of Aetna
|
In millions
|
|
||
Cash
|
$
|
48,089
|
|
Common stock (274.4 million shares)
(1)
|
22,117
|
|
|
Fair value of replacement equity awards for pre-combination services (9.9 million shares)
(2)
|
367
|
|
|
Effective settlement of pre-existing relationship
(3)
|
(807
|
)
|
|
Total consideration transferred
|
$
|
69,766
|
|
(1)
|
The fair value of the Company’s common stock issued as consideration was calculated based on the
327.6 million
Aetna common shares outstanding as of November 28, 2018 multiplied by (i) the merger agreement per share exchange ratio and (ii) the volume weighted average price of CVS Health common stock on November 28, 2018 of
$80.59
.
|
(2)
|
The fair value of the replacement equity awards issued by the Company was determined as of the Aetna Acquisition Date. The fair value of the awards attributed to pre-combination services of
$367 million
is included in the consideration transferred and the fair value of the awards attributed to post-combination services of
$232 million
has been, or will be, included in the Company’s post-combination financial statements as compensation costs.
|
(3)
|
The purchase price included
$807 million
of effectively settled liabilities the Company owed to Aetna from their pre-existing pharmacy services relationship.
|
In millions
|
|
||
Cash and cash equivalents
|
$
|
6,565
|
|
Accounts receivable
(1)
|
4,089
|
|
|
Other current assets
|
3,896
|
|
|
Investments (current and long-term)
|
17,991
|
|
|
Goodwill
|
46,684
|
|
|
Intangible assets
|
23,746
|
|
|
Other long-term assets
|
8,282
|
|
|
Total assets acquired
|
111,253
|
|
|
Health care costs payable
|
5,359
|
|
|
Other current liabilities
|
10,026
|
|
|
Debt (current and long-term)
|
8,098
|
|
|
Deferred income taxes
|
4,574
|
|
|
Other long-term liabilities
|
13,101
|
|
|
Total liabilities assumed
|
41,158
|
|
|
Noncontrolling interests
|
329
|
|
|
Total consideration transferred
|
$
|
69,766
|
|
|
|
(1)
|
The fair value of premium receivables acquired is
$2.4 billion
, with the gross contractual amount being
$2.8 billion
. The Company expects
$424 million
of premium receivables to be uncollectible. The fair value of other receivables acquired is
$1.7 billion
, with the gross contractual amount being
$1.8 billion
. The Company expects
$84 million
of other receivables to be uncollectible.
|
In millions
|
|
||
Health Care Benefits
|
$
|
44,484
|
|
Pharmacy Services
|
1,500
|
|
|
Retail/LTC
|
700
|
|
|
Total goodwill
|
$
|
46,684
|
|
|
|
|
Weighted
|
||
|
|
|
Average
|
||
|
Gross
|
|
Useful Life
|
||
In millions, except weighted average useful life
|
Fair Value
|
|
(years)
|
||
Customer relationships
(1)
|
$
|
13,630
|
|
|
14.4
|
Standalone Medicare Part D prescription drug plan customer relationship (held for sale)
|
101
|
|
|
N/A
|
|
Technology
|
1,060
|
|
|
3.0
|
|
Provider networks
(1)
|
4,200
|
|
|
20.0
|
|
Value of Business Acquired
|
590
|
|
|
20.0
|
|
Trademark (definite-lived)
|
65
|
|
|
5.0
|
|
Trademark (indefinitely-lived)
|
4,100
|
|
|
N/A
|
|
Total intangible assets
|
$
|
23,746
|
|
|
15.1
|
(1)
|
The amortization period for the Company’s customer relationships and provider networks includes an assumption of renewal or extension of these arrangements. At the acquisition date, the periods prior to the next renewal or extension for provider networks primarily ranged from
one
to
three
years, and the period prior to the next renewal or extension for customer relationships was
one
year. Any costs related to the renewal or extension of these contracts are expensed as incurred.
|
|
Year Ended December 31,
|
||||||
In millions, except per share data
|
2018
|
|
2017
|
||||
Total revenues
|
$
|
243,398
|
|
|
$
|
236,000
|
|
Income from continuing operations
|
1,123
|
|
|
6,813
|
|
||
Basic earnings per share from continuing operations attributable to CVS Health
|
$
|
0.87
|
|
|
$
|
5.25
|
|
Diluted earnings per share from continuing operations attributable to CVS Health
|
$
|
0.86
|
|
|
$
|
5.21
|
|
|
|
|
|
•
|
Elimination of intercompany transactions between CVS Health and Aetna;
|
•
|
Elimination of estimated foregone interest income associated with (i) cash assumed to have been used to partially fund the Aetna Acquisition and (ii) adjusting the amortized cost of Aetna’s investment portfolio to fair value as of the completion of the Aetna Acquisition;
|
•
|
Elimination of historical intangible asset, deferred acquisition cost and capitalized software amortization expense and addition of amortization expense based on the current preliminary values of identified intangible assets;
|
•
|
Additional interest expense from (i) the long-term debt issued to partially fund the Aetna Acquisition and (ii) the amortization of the fair value adjustment to assumed long-term debt.
|
•
|
Additional depreciation expense related to the adjustment of Aetna’s property and equipment to fair value;
|
•
|
Adjustments to align CVS Health’s and Aetna’s accounting policies;
|
•
|
Elimination of transaction related costs; and
|
•
|
Tax effects of the adjustments noted above.
|
3.
|
Investments
|
In millions
|
Current
|
|
Long-term
|
|
Total
|
||||||
Debt securities available for sale
|
$
|
2,359
|
|
|
$
|
12,896
|
|
|
$
|
15,255
|
|
Mortgage loans
|
145
|
|
|
1,216
|
|
|
1,361
|
|
|||
Other investments
|
18
|
|
|
1,620
|
|
|
1,638
|
|
|||
Total investments
|
$
|
2,522
|
|
|
$
|
15,732
|
|
|
$
|
18,254
|
|
|
|
|
|
|
|
In millions
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
||||||||
December 31, 2018
|
|
|
|
|
|
|
|
||||||||
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. government securities
|
$
|
1,662
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
1,688
|
|
States, municipalities and political subdivisions
|
2,370
|
|
|
30
|
|
|
(1
|
)
|
|
2,399
|
|
||||
U.S. corporate securities
|
6,444
|
|
|
61
|
|
|
(16
|
)
|
|
6,489
|
|
||||
Foreign securities
|
2,355
|
|
|
31
|
|
|
(3
|
)
|
|
2,383
|
|
||||
Residential mortgage-backed securities
|
567
|
|
|
10
|
|
|
—
|
|
|
577
|
|
||||
Commercial mortgage-backed securities
|
594
|
|
|
11
|
|
|
—
|
|
|
605
|
|
||||
Other asset-backed securities
|
1,097
|
|
|
3
|
|
|
(15
|
)
|
|
1,085
|
|
||||
Redeemable preferred securities
|
30
|
|
|
—
|
|
|
(1
|
)
|
|
29
|
|
||||
Total debt securities
(1)
|
$
|
15,119
|
|
|
$
|
172
|
|
|
$
|
(36
|
)
|
|
$
|
15,255
|
|
|
|
|
|
|
|
|
|
(1)
|
Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated results of operations. At
December 31, 2018
, debt securities with a fair value of
$916 million
, gross unrealized capital gains of
$12 million
and gross unrealized capital losses of
$2 million
were included in total debt securities, but support experience-rated products.
|
In millions
|
Amortized Cost
|
|
Fair Value
|
||||
Due to mature:
|
|
|
|
||||
Less than one year
|
$
|
901
|
|
|
$
|
902
|
|
One year through five years
|
5,489
|
|
|
5,521
|
|
||
After five years through ten years
|
2,973
|
|
|
2,999
|
|
||
Greater than ten years
|
3,498
|
|
|
3,566
|
|
||
Residential mortgage-backed securities
|
567
|
|
|
577
|
|
||
Commercial mortgage-backed securities
|
594
|
|
|
605
|
|
||
Other asset-backed securities
|
1,097
|
|
|
1,085
|
|
||
Total
|
$
|
15,119
|
|
|
$
|
15,255
|
|
|
|
|
|
In millions, except number of securities
|
Number of Securities
|
|
Fair
Value
|
|
Unrealized
Losses
|
|||||
Debt securities:
|
|
|
|
|
|
|||||
U.S. government securities
|
8
|
|
|
$
|
26
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
54
|
|
|
86
|
|
|
1
|
|
||
U.S. corporate securities
|
1,399
|
|
|
1,431
|
|
|
16
|
|
||
Foreign securities
|
243
|
|
|
314
|
|
|
3
|
|
||
Residential mortgage-backed securities
|
45
|
|
|
1
|
|
|
—
|
|
||
Other asset-backed securities
|
516
|
|
|
528
|
|
|
15
|
|
||
Redeemable preferred securities
|
14
|
|
|
23
|
|
|
1
|
|
||
Total debt securities
|
2,279
|
|
|
$
|
2,409
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
Supporting experience-rated products
|
|
Supporting remaining
products
|
|
Total
|
||||||||||||||||||
In millions
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
||||||||||||
Due to mature:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Less than one year
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
329
|
|
|
$
|
—
|
|
One year through five years
|
36
|
|
|
2
|
|
|
557
|
|
|
5
|
|
|
593
|
|
|
7
|
|
||||||
After five years through ten years
|
47
|
|
|
—
|
|
|
492
|
|
|
9
|
|
|
539
|
|
|
9
|
|
||||||
Greater than ten years
|
49
|
|
|
—
|
|
|
370
|
|
|
5
|
|
|
419
|
|
|
5
|
|
||||||
Residential mortgage-backed securities
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||||
Other asset-backed securities
|
4
|
|
|
—
|
|
|
524
|
|
|
15
|
|
|
528
|
|
|
15
|
|
||||||
Total
|
$
|
157
|
|
|
$
|
2
|
|
|
$
|
2,252
|
|
|
$
|
34
|
|
|
$
|
2,409
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
||
New mortgage loans
|
$
|
4
|
|
Mortgage loans fully-repaid
|
27
|
|
|
Mortgage loans foreclosed
|
—
|
|
•
|
Category 1 -
Represents loans of superior quality
|
•
|
Categories 2 to 4
- Represents loans where credit risk is minimal to acceptable; however, these loans may display some susceptibility to economic changes.
|
•
|
Categories 5 and 6
- Represents loans where credit risk is not substantial, but these loans warrant management’s close attention.
|
•
|
Category 7
- Represents loans where collections are potentially at risk; if necessary, an impairment is recorded.
|
In millions
|
|
||
2019
|
$
|
145
|
|
2020
|
109
|
|
|
2021
|
269
|
|
|
2022
|
228
|
|
|
2023
|
83
|
|
|
Thereafter
|
527
|
|
|
Total
|
$
|
1,361
|
|
|
|
In millions
|
|
||
Debt securities
|
$
|
637
|
|
Mortgage loans
|
6
|
|
|
Other investments
|
17
|
|
|
Gross investment income
|
660
|
|
|
Investment expenses
|
(3
|
)
|
|
Net investment income (excluding net realized capital gains or losses)
|
657
|
|
|
Net realized capital gains
|
3
|
|
|
Net investment income
(1)
|
$
|
660
|
|
|
|
(1)
|
Net investment income in
2018
includes
$4 million
related to investments supporting experience-rated products.
|
In millions
|
|
||
Proceeds from sales
|
$
|
389
|
|
Gross realized capital gains
|
2
|
|
|
Gross realized capital losses
|
(2
|
)
|
|
|
|
(1)
|
The proceeds from sales and gross realized capital gains and losses exclude the impact of the sales of short-term debt securities which primarily relate to the Company’s investments in mutual funds. These investments were excluded from the disclosed amounts because they represent an immaterial amount of aggregate gross realized capital gains or losses and have a high volume of sales activity.
|
4.
|
Fair Value
|
•
|
Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets.
|
•
|
Level 2 – Inputs other than Level 1 that are based on observable market data. These include: quoted prices for similar assets in active markets, quoted prices for identical assets in inactive markets, inputs that are observable that are not prices (such as interest rates and credit risks) and inputs that are derived from or corroborated by observable markets.
|
•
|
Level 3 – Developed from unobservable data, reflecting the Company’s assumptions.
|
|
|
|
|
|
|
|
|
||||||||
In millions
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
December 31, 2018
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities
|
$
|
1,597
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
1,688
|
|
States, municipalities and political subdivisions
|
—
|
|
|
2,399
|
|
|
—
|
|
|
2,399
|
|
||||
U.S. corporate securities
|
—
|
|
|
6,422
|
|
|
67
|
|
|
6,489
|
|
||||
Foreign securities
|
—
|
|
|
2,380
|
|
|
3
|
|
|
2,383
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
577
|
|
|
—
|
|
|
577
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
605
|
|
|
—
|
|
|
605
|
|
||||
Other asset-backed securities
|
—
|
|
|
1,085
|
|
|
—
|
|
|
1,085
|
|
||||
Redeemable preferred securities
|
—
|
|
|
22
|
|
|
7
|
|
|
29
|
|
||||
Total debt securities
|
1,597
|
|
|
13,581
|
|
|
77
|
|
|
15,255
|
|
||||
Equity securities
|
19
|
|
|
—
|
|
|
54
|
|
|
73
|
|
||||
Total
|
$
|
1,616
|
|
|
$
|
13,581
|
|
|
$
|
131
|
|
|
$
|
15,328
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. corporate securities
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Foreign securities
|
—
|
|
|
110
|
|
|
—
|
|
|
110
|
|
||||
Total debt securities
|
—
|
|
|
111
|
|
|
—
|
|
|
111
|
|
||||
Equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Derivative financial instruments
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
||||
Total assets
|
$
|
—
|
|
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
116
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative financial instruments
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Estimated Fair Value
|
||||||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|||||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage loans
|
$
|
1,361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,366
|
|
|
$
|
1,366
|
|
Equity securities
(1)
|
140
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
With a fixed maturity
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||
Without a fixed maturity
|
382
|
|
|
—
|
|
|
—
|
|
|
357
|
|
|
357
|
|
|||||
Long-term debt
|
72,709
|
|
|
71,252
|
|
|
—
|
|
|
—
|
|
|
71,252
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Estimated Fair Value
|
||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||
Equity securities
(1)
|
$
|
47
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||
Long-term debt
|
25,726
|
|
|
26,756
|
|
|
—
|
|
|
—
|
|
|
26,756
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies. See
Note 1 ‘‘Significant Accounting Policies’’
for additional information regarding the valuation of cost-method investments.
|
In millions
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Debt securities
|
$
|
782
|
|
|
$
|
2,500
|
|
|
$
|
4
|
|
|
$
|
3,286
|
|
Equity securities
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
Common/collective trusts
|
—
|
|
|
404
|
|
|
—
|
|
|
404
|
|
||||
Total
(1)
|
$
|
782
|
|
|
$
|
2,907
|
|
|
$
|
4
|
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes
$191 million
of cash and cash equivalents and accounts receivable at
December 31, 2018
.
|
5.
|
Goodwill and Other Intangibles
|
|
|
|
|
|
|
|
|
||||||||
In millions
|
Pharmacy
Services
|
|
Retail/LTC
|
|
Health Care
Benefits
|
|
Total
|
||||||||
Balance at December 31, 2016
|
$
|
21,637
|
|
|
$
|
16,612
|
|
|
$
|
—
|
|
|
$
|
38,249
|
|
Acquisitions
|
182
|
|
|
203
|
|
|
—
|
|
|
385
|
|
||||
Foreign currency translation adjustments
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Impairments
|
—
|
|
|
(181
|
)
|
|
—
|
|
|
(181
|
)
|
||||
Balance at December 31, 2017
|
21,819
|
|
|
16,632
|
|
|
—
|
|
|
38,451
|
|
||||
Acquisitions
|
1,569
|
|
|
735
|
|
|
44,484
|
|
|
46,788
|
|
||||
Foreign currency translation adjustments
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
||||
Divestiture of RxCrossroads subsidiary
|
—
|
|
|
(398
|
)
|
|
—
|
|
|
(398
|
)
|
||||
Impairments
|
—
|
|
|
(6,149
|
)
|
|
—
|
|
|
(6,149
|
)
|
||||
Balance at December 31, 2018
|
$
|
23,388
|
|
|
$
|
10,806
|
|
|
$
|
44,484
|
|
|
$
|
78,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
In millions, except weighted average life
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Weighted
Average
Life (years)
|
||||||
2018
|
|
|
|
|
|
|
|
||||||
Trademarks (indefinitely-lived)
|
$
|
10,498
|
|
|
$
|
—
|
|
|
$
|
10,498
|
|
|
N/A
|
Customer contracts/relationships and covenants not to compete
|
26,213
|
|
|
(6,349
|
)
|
|
19,864
|
|
|
14.8
|
|||
Technology
|
1,060
|
|
|
(31
|
)
|
|
1,029
|
|
|
3.0
|
|||
Provider networks
|
4,200
|
|
|
(19
|
)
|
|
4,181
|
|
|
20.0
|
|||
Value of Business Acquired
|
590
|
|
|
(7
|
)
|
|
583
|
|
|
20.0
|
|||
Favorable leases and other
|
1,177
|
|
|
(808
|
)
|
|
369
|
|
|
17.1
|
|||
Total
|
$
|
43,738
|
|
|
$
|
(7,214
|
)
|
|
$
|
36,524
|
|
|
15.3
|
|
|
|
|
|
|
|
|
||||||
2017
|
|
|
|
|
|
|
|
||||||
Trademark (indefinitely-lived)
|
$
|
6,398
|
|
|
$
|
—
|
|
|
$
|
6,398
|
|
|
N/A
|
Customer contracts/relationships and covenants not to compete
|
12,341
|
|
|
(5,536
|
)
|
|
6,805
|
|
|
15.3
|
|||
Favorable leases and other
|
1,190
|
|
|
(763
|
)
|
|
427
|
|
|
16.2
|
|||
Total
|
$
|
19,929
|
|
|
$
|
(6,299
|
)
|
|
$
|
13,630
|
|
|
15.4
|
|
|
|
|
|
|
|
|
6.
|
Leases
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Minimum rentals
|
$
|
2,528
|
|
|
$
|
2,455
|
|
|
$
|
2,418
|
|
Contingent rentals
|
28
|
|
|
29
|
|
|
35
|
|
|||
Rental expense
|
2,556
|
|
|
2,484
|
|
|
2,453
|
|
|||
Less: sublease income
|
(21
|
)
|
|
(24
|
)
|
|
(24
|
)
|
|||
Total rental expense, net
|
$
|
2,535
|
|
|
$
|
2,460
|
|
|
$
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Capital
|
|
Operating
|
||||
In millions
|
Leases
|
|
Leases
(1)
|
||||
2019
|
$
|
74
|
|
|
$
|
2,690
|
|
2020
|
73
|
|
|
2,544
|
|
||
2021
|
73
|
|
|
2,399
|
|
||
2022
|
73
|
|
|
2,233
|
|
||
2023
|
73
|
|
|
2,110
|
|
||
Thereafter
|
875
|
|
|
16,004
|
|
||
Total future lease payments
(2)
|
1,241
|
|
|
$
|
27,980
|
|
|
Less: imputed interest
|
(599
|
)
|
|
|
|||
Present value of capital lease obligations
|
$
|
642
|
|
|
|
||
|
|
|
|
(1)
|
Future operating lease payments have not been reduced by minimum sublease rentals of
$164 million
due in the future under noncancelable subleases.
|
(2)
|
The Company leases pharmacy and clinic space from Target. Amounts related to such capital and operating leases are reflected above. Amounts due in excess of the remaining estimated economic life of the buildings of approximately
$2.1 billion
are not reflected herein since the estimated economic life of the buildings is shorter than the contractual term of the lease arrangement.
|
7.
|
Health Care Costs Payable
|
In millions
|
|
||
Health care costs payable, beginning of the period
|
$
|
5
|
|
Less: Reinsurance recoverables
|
—
|
|
|
Health care costs payable, beginning of the period, net
|
5
|
|
|
Acquisitions, net
|
5,357
|
|
|
Add: Components of incurred health care costs
|
|
||
Current year
|
6,594
|
|
|
Prior years
|
(42
|
)
|
|
Total incurred health care costs
(1)
|
6,552
|
|
|
Less: Claims paid
|
|
||
Current year
|
6,464
|
|
|
Prior years
|
260
|
|
|
Total claims paid
|
6,724
|
|
|
Add: Premium deficiency reserve
|
16
|
|
|
Health care costs payable, end of period, net
|
5,206
|
|
|
Add: Reinsurance recoverables
|
4
|
|
|
Health care costs payable, end of period
|
$
|
5,210
|
|
|
|
(1)
|
Total incurred health care costs for the year ended
December 31, 2018
in the table above exclude (i)
$16 million
related to a premium deficiency reserve for the 2019 coverage year related to Medicaid products, (ii)
$4 million
of benefit costs recorded in the Health Care Benefits segment that are included in Other Insurance Liabilities on the consolidated balance sheet and (iii)
$22 million
of benefit costs recorded in the Corporate/Other segment that are included in Other Insurance Liabilities on the consolidated balance sheet.
|
8.
|
Borrowings and Credit Agreements
|
In millions
|
2018
|
|
2017
|
||||
Short-term debt
|
|
|
|
||||
Commercial paper
|
$
|
720
|
|
|
$
|
1,276
|
|
|
|
|
|
||||
Long-term debt
|
|
|
|
||||
1.9% senior notes due July 2018
|
—
|
|
|
2,250
|
|
||
2.25% senior notes due December 2018
|
—
|
|
|
1,250
|
|
||
2.2% senior notes due March 2019
|
375
|
|
|
—
|
|
||
2.25% senior notes due August 2019
|
850
|
|
|
850
|
|
||
3.125% senior notes due March 2020
|
2,000
|
|
|
—
|
|
||
Floating rate notes due March 2020
|
1,000
|
|
|
—
|
|
||
2.8% senior notes due July 2020
|
2,750
|
|
|
2,750
|
|
||
3.35% senior notes due March 2021
|
3,000
|
|
|
—
|
|
||
Floating rate notes due March 2021
|
1,000
|
|
|
—
|
|
||
4.125% senior notes due May 2021
|
550
|
|
|
550
|
|
||
2.125% senior notes due June 2021
|
1,750
|
|
|
1,750
|
|
||
4.125% senior notes due June 2021
|
500
|
|
|
—
|
|
||
5.45% senior notes due June 2021
|
600
|
|
|
—
|
|
||
3-Year tranche loan due November 2021
|
3,000
|
|
|
—
|
|
||
3.5% senior notes due July 2022
|
1,500
|
|
|
1,500
|
|
||
2.75% senior notes due November 2022
|
1,000
|
|
|
—
|
|
||
2.75% senior notes due December 2022
|
1,250
|
|
|
1,250
|
|
||
4.75% senior notes due December 2022
|
399
|
|
|
399
|
|
||
3.7% senior notes due March 2023
|
6,000
|
|
|
—
|
|
||
2.8% senior notes due June 2023
|
1,300
|
|
|
—
|
|
||
4% senior notes due December 2023
|
1,250
|
|
|
1,250
|
|
||
3.375% senior notes due August 2024
|
650
|
|
|
650
|
|
||
3.5% senior notes due November 2024
|
750
|
|
|
—
|
|
||
5% senior notes due December 2024
|
299
|
|
|
299
|
|
||
4.1% senior notes due March 2025
|
5,000
|
|
|
—
|
|
||
3.875% senior notes due July 2025
|
2,828
|
|
|
2,828
|
|
||
2.875% senior notes due June 2026
|
1,750
|
|
|
1,750
|
|
||
6.25% senior notes due June 2027
|
372
|
|
|
372
|
|
||
4.3% senior notes due March 2028
|
9,000
|
|
|
—
|
|
||
4.875% senior notes due July 2035
|
652
|
|
|
652
|
|
||
3.25% senior exchange debentures due December 2035
|
—
|
|
|
1
|
|
||
6.625% senior notes due June 2036
|
771
|
|
|
—
|
|
||
6.75% senior notes due December 2037
|
533
|
|
|
—
|
|
||
4.78% senior notes due March 2038
|
5,000
|
|
|
—
|
|
||
6.125% senior notes due September 2039
|
447
|
|
|
447
|
|
||
5.75% senior notes due May 2041
|
133
|
|
|
133
|
|
||
4.5% senior notes due May 2042
|
500
|
|
|
—
|
|
||
4.125% senior notes due November 2042
|
500
|
|
|
—
|
|
||
5.3% senior notes due December 2043
|
750
|
|
|
750
|
|
||
4.75% senior notes due March 2044
|
375
|
|
|
—
|
|
||
5.125% senior notes due July 2045
|
3,500
|
|
|
3,500
|
|
||
3.875% senior notes due August 2047
|
1,000
|
|
|
—
|
|
||
5.05% senior notes due March 2048
|
8,000
|
|
|
—
|
|
||
Capital lease obligations
|
642
|
|
|
670
|
|
||
Other
|
19
|
|
|
43
|
|
||
Total debt principal
|
74,265
|
|
|
27,170
|
|
||
Debt premiums
|
302
|
|
|
28
|
|
||
Debt discounts and deferred financing costs
|
(1,138
|
)
|
|
(196
|
)
|
||
|
73,429
|
|
|
27,002
|
|
||
Less:
|
|
|
|
||||
Short-term debt (commercial paper)
|
(720
|
)
|
|
(1,276
|
)
|
||
Current portion of long-term debt
|
(1,265
|
)
|
|
(3,545
|
)
|
||
Long-term debt
|
$
|
71,444
|
|
|
$
|
22,181
|
|
|
|
||
In millions
|
|
||
2019
|
$
|
1,985
|
|
2020
|
5,775
|
|
|
2021
|
10,427
|
|
|
2022
|
4,178
|
|
|
2023
|
8,581
|
|
|
Thereafter
|
43,319
|
|
|
Total
|
$
|
74,265
|
|
|
|
|
|
||
In millions
|
|
||
3.125% senior notes due March 2020
|
$
|
2,000
|
|
Floating rate notes due March 2020
|
1,000
|
|
|
3.35% senior notes due March 2021
|
3,000
|
|
|
Floating rate notes due March 2021
|
1,000
|
|
|
3.7% senior notes due March 2023
|
6,000
|
|
|
4.1% senior notes due March 2025
|
5,000
|
|
|
4.3% senior notes due March 2028
|
9,000
|
|
|
4.78% senior notes due March 2038
|
5,000
|
|
|
5.05% senior notes due March 2048
|
8,000
|
|
|
Total debt principal
|
$
|
40,000
|
|
9.
|
Pension Plans and Other Postretirement Benefits
|
In millions
|
2018
|
|
2017
|
||||
Change in benefit obligation:
|
|
|
|
||||
Benefit obligation, beginning of year
|
$
|
131
|
|
|
$
|
844
|
|
Acquired benefit obligations
|
5,685
|
|
|
—
|
|
||
Interest cost
|
25
|
|
|
20
|
|
||
Actuarial loss (gain)
|
41
|
|
|
(31
|
)
|
||
Benefit payments
|
(41
|
)
|
|
(35
|
)
|
||
Settlements
|
—
|
|
|
(667
|
)
|
||
Benefit obligation, end of year
|
$
|
5,841
|
|
|
$
|
131
|
|
|
|
|
|
||||
In millions
|
2018
|
|
2017
|
||||
Change in plan assets:
|
|
|
|
||||
Fair value of plan assets, beginning of year
|
$
|
—
|
|
|
$
|
624
|
|
Fair value of plan assets acquired
|
5,709
|
|
|
—
|
|
||
Actual return on plan assets
|
(17
|
)
|
|
32
|
|
||
Employer contributions
|
12
|
|
|
46
|
|
||
Benefit payments
|
(41
|
)
|
|
(35
|
)
|
||
Settlements
|
—
|
|
|
(667
|
)
|
||
Fair value of plan assets, end of year
|
5,663
|
|
|
—
|
|
||
|
|
|
|
||||
Funded status
|
$
|
(178
|
)
|
|
$
|
(131
|
)
|
In millions
|
2018
|
|
2017
|
||||
Accrued benefit assets reflected in other assets
|
$
|
147
|
|
|
$
|
—
|
|
Accrued benefit liabilities reflected in accrued expenses
|
(25
|
)
|
|
(21
|
)
|
||
Accrued benefit liabilities reflected in other long-term liabilities
|
(300
|
)
|
|
(110
|
)
|
||
Net liabilities
|
$
|
(178
|
)
|
|
$
|
(131
|
)
|
|
|
|
|
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Components of net periodic benefit cost:
|
|
|
|
|
|
||||||
Interest cost
|
$
|
25
|
|
|
$
|
20
|
|
|
$
|
27
|
|
Expected return on plan assets
|
(33
|
)
|
|
(20
|
)
|
|
(32
|
)
|
|||
Amortization of net actuarial loss
|
2
|
|
|
21
|
|
|
32
|
|
|||
Settlement losses
|
—
|
|
|
187
|
|
|
—
|
|
|||
Net periodic benefit cost
|
$
|
(6
|
)
|
|
$
|
208
|
|
|
$
|
27
|
|
|
|
|
|
|
|
In millions
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. government securities
|
$
|
511
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
549
|
|
States, municipalities and political subdivisions
|
—
|
|
|
147
|
|
|
—
|
|
|
147
|
|
||||
U.S. corporate securities
|
—
|
|
|
1,671
|
|
|
5
|
|
|
1,676
|
|
||||
Foreign securities
|
—
|
|
|
177
|
|
|
—
|
|
|
177
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
339
|
|
|
—
|
|
|
339
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
70
|
|
|
—
|
|
|
70
|
|
||||
Other asset-backed securities
|
—
|
|
|
162
|
|
|
—
|
|
|
162
|
|
||||
Redeemable preferred securities
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
||||
Total debt securities
|
511
|
|
|
2,610
|
|
|
5
|
|
|
3,126
|
|
||||
Equity securities:
|
|
|
|
|
|
|
|
||||||||
U.S. Domestic
|
744
|
|
|
—
|
|
|
—
|
|
|
744
|
|
||||
International
|
356
|
|
|
—
|
|
|
—
|
|
|
356
|
|
||||
Domestic real estate
|
30
|
|
|
—
|
|
|
—
|
|
|
30
|
|
||||
Total equity securities
|
1,130
|
|
|
—
|
|
|
—
|
|
|
1,130
|
|
||||
Other investments:
|
|
|
|
|
|
|
|
||||||||
Real estate
|
—
|
|
|
—
|
|
|
425
|
|
|
425
|
|
||||
Common/collective trusts
(1)
|
—
|
|
|
253
|
|
|
—
|
|
|
253
|
|
||||
Derivatives
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Total other investments
|
—
|
|
|
255
|
|
|
425
|
|
|
680
|
|
||||
Total pension investments
(2)
|
$
|
1,641
|
|
|
$
|
2,865
|
|
|
$
|
430
|
|
|
$
|
4,936
|
|
|
|
|
|
|
|
|
|
(1)
|
The assets in the underlying funds of common/collective trusts consist of
$109 million
of equity securities and
$144 million
of debt securities.
|
(2)
|
Excludes
$98 million
of cash and cash equivalents,
$465 million
of private equity limited partnership investments and
$164 million
of hedge fund limited partnership investments as the amounts are carried at fair value.
|
In millions
|
|
||
2019
|
$
|
375
|
|
2020
|
387
|
|
|
2021
|
411
|
|
|
2022
|
387
|
|
|
2023
|
391
|
|
|
2024-2028
|
1,916
|
|
|
|
|
In millions
|
|
||
2019
|
$
|
17
|
|
2020
|
17
|
|
|
2021
|
17
|
|
|
2022
|
16
|
|
|
2023
|
16
|
|
|
2024-2028
|
76
|
|
|
|
|
10.
|
Income Taxes
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Current:
|
|
|
|
|
|
||||||
Federal
|
$
|
1,480
|
|
|
$
|
2,594
|
|
|
$
|
2,803
|
|
State
|
499
|
|
|
464
|
|
|
511
|
|
|||
|
1,979
|
|
|
3,058
|
|
|
3,314
|
|
|||
Deferred:
|
|
|
|
|
|
||||||
Federal
|
22
|
|
|
(1,435
|
)
|
|
5
|
|
|||
State
|
1
|
|
|
14
|
|
|
(2
|
)
|
|||
|
23
|
|
|
(1,421
|
)
|
|
3
|
|
|||
Total
|
$
|
2,002
|
|
|
$
|
1,637
|
|
|
$
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
2018
|
|
2017
|
|
2016
|
|||
Statutory income tax rate
|
21.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
27.7
|
|
|
4.1
|
|
|
4.1
|
|
Effect of the Tax Cuts and Jobs Act
|
(7.1
|
)
|
|
(18.3
|
)
|
|
—
|
|
Health insurer fee
|
2.2
|
|
|
—
|
|
|
0.2
|
|
Goodwill impairments
|
89.5
|
|
|
0.8
|
|
|
—
|
|
Sale of subsidiary
|
5.0
|
|
|
—
|
|
|
—
|
|
Other
|
4.1
|
|
|
(1.8
|
)
|
|
(0.9
|
)
|
Effective income tax rate
|
142.4
|
%
|
|
19.8
|
%
|
|
38.4
|
%
|
|
|
|
|
|
|
|
|
|
|
||||
In millions
|
2018
|
|
2017
|
||||
Deferred income tax assets:
|
|
|
|
||||
Lease and rents
|
$
|
277
|
|
|
$
|
291
|
|
Inventory
|
28
|
|
|
31
|
|
||
Employee benefits
|
243
|
|
|
246
|
|
||
Allowance for doubtful accounts
|
243
|
|
|
187
|
|
||
Retirement benefits
|
130
|
|
|
40
|
|
||
Net operating loss and capital loss carryforwards
|
529
|
|
|
101
|
|
||
Deferred income
|
104
|
|
|
93
|
|
||
Insurance reserves
|
467
|
|
|
—
|
|
||
Investments
|
11
|
|
|
—
|
|
||
Other
|
242
|
|
|
18
|
|
||
Valuation allowance
|
(520
|
)
|
|
(77
|
)
|
||
Total deferred income tax assets
|
1,754
|
|
|
930
|
|
||
Deferred income tax liabilities:
|
|
|
|
||||
Depreciation and amortization
|
(9,431
|
)
|
|
(3,926
|
)
|
||
Total deferred income tax liabilities
|
(9,431
|
)
|
|
(3,926
|
)
|
||
Net deferred income tax liabilities
|
$
|
(7,677
|
)
|
|
$
|
(2,996
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Beginning balance
|
$
|
344
|
|
|
$
|
307
|
|
|
$
|
338
|
|
Additions based on tax positions related to the current year
|
1
|
|
|
62
|
|
|
68
|
|
|||
Additions based on tax positions related to prior years
|
324
|
|
|
32
|
|
|
70
|
|
|||
Reductions for tax positions of prior years
|
(5
|
)
|
|
(28
|
)
|
|
(100
|
)
|
|||
Expiration of statutes of limitation
|
(2
|
)
|
|
(10
|
)
|
|
(22
|
)
|
|||
Settlements
|
(1
|
)
|
|
(19
|
)
|
|
(47
|
)
|
|||
Ending balance
|
$
|
661
|
|
|
$
|
344
|
|
|
$
|
307
|
|
|
|
|
|
|
|
11.
|
Stock Incentive Plans
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Stock options and stock appreciation rights (“SARs”)
(1)(2)
|
$
|
70
|
|
|
$
|
65
|
|
|
$
|
79
|
|
Restricted stock units and performance stock units
(2)
|
210
|
|
|
169
|
|
|
143
|
|
|||
Total stock-based compensation
|
$
|
280
|
|
|
$
|
234
|
|
|
$
|
222
|
|
|
|
|
|
|
|
(1)
|
Includes the ESPP.
|
(2)
|
Stock-based compensation for the year ended
December 31, 2018
includes
$14 million
and
$27 million
associated with accelerated vesting of SARs and restricted stock replacement awards, respectively, issued to Aetna employees who were terminated subsequent to the acquisition.
|
|
|
|
|
|
|
||||||
|
2018
|
|
2017
|
|
2016
|
||||||
Dividend yield
(1)
|
1.45
|
%
|
|
1.24
|
%
|
|
0.88
|
%
|
|||
Expected volatility
(2)
|
28.02
|
%
|
|
22.70
|
%
|
|
20.64
|
%
|
|||
Risk-free interest rate
(3)
|
1.87
|
%
|
|
0.86
|
%
|
|
0.45
|
%
|
|||
Expected life (in years)
(4)
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
|||
Weighted-average grant date fair value
|
$
|
12.26
|
|
|
$
|
13.01
|
|
|
$
|
14.98
|
|
|
|
|
|
|
|
(1)
|
The dividend yield is calculated based on semi-annual dividends paid and the fair market value of the Company’s stock at the grant date.
|
(2)
|
The expected volatility is based on the historical volatility of the Company’s daily stock market prices over the previous six month period.
|
(3)
|
The risk-free interest rate is based on the Treasury constant maturity interest rate whose term is consistent with the expected term of ESPP purchases (i.e., six months).
|
(4)
|
The expected life is based on the semi-annual purchase period.
|
|
|
|
|
|||
|
|
|
Weighted Average
|
|
||
|
|
|
Grant Date
|
|
||
Units in thousands
|
Units
|
|
Fair Value
|
|
||
Unvested at beginning of year
|
5,014
|
|
|
$
|
86.92
|
|
Granted
|
10,185
|
|
|
$
|
73.18
|
|
Vested
|
(3,757
|
)
|
|
$
|
68.85
|
|
Forfeited
|
(437
|
)
|
|
$
|
76.92
|
|
Unvested at end of year
|
11,005
|
|
|
$
|
76.18
|
|
|
|
|
|
|
|
|
|
|
|
||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Cash received from stock options exercised (including ESPP)
|
$
|
242
|
|
|
$
|
329
|
|
|
$
|
296
|
|
Payments for taxes for net share settlement of equity awards
|
97
|
|
|
71
|
|
|
72
|
|
|||
Intrinsic value of stock options and SARs exercised
|
79
|
|
|
176
|
|
|
244
|
|
|||
Fair value of stock options and SARs vested
|
324
|
|
|
341
|
|
|
298
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2018
|
|
2017
|
|
2016
|
||||||
Dividend yield
(1)
|
2.76
|
%
|
|
2.56
|
%
|
|
1.62
|
%
|
|||
Expected volatility
(2)
|
21.27
|
%
|
|
18.39
|
%
|
|
17.22
|
%
|
|||
Risk-free interest rate
(3)
|
2.77
|
%
|
|
1.77
|
%
|
|
1.24
|
%
|
|||
Expected life (in years)
(4)
|
4.8
|
|
|
4.1
|
|
|
4.2
|
|
|||
Weighted-average grant date fair value
|
$
|
24.55
|
|
|
$
|
9.43
|
|
|
$
|
13.00
|
|
|
|
|
|
|
|
(1)
|
The dividend yield is based on annual dividends paid and the fair market value of the Company’s stock at the grant date.
|
(2)
|
The expected volatility is estimated using the Company’s historical volatility over a period equal to the expected life of each option grant after adjustments for infrequent events such as stock splits.
|
(3)
|
The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued.
|
(4)
|
The expected life represents the number of years the options are expected to be outstanding from grant date based on historical option holder exercise experience.
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
Weighted
|
|
|
|||||
|
|
|
Weighted
|
|
Average
|
|
|
|||||
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|||||
In thousands, except weighted average exercise price and remaining contractual term
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|||||
Shares
|
|
Price
|
|
Term
|
|
Value
|
||||||
Outstanding at December 31, 2017
|
20,530
|
|
|
$
|
75.32
|
|
|
|
|
|
||
Granted
|
7,144
|
|
|
$
|
51.06
|
|
|
|
|
|
||
Exercised
|
(2,993
|
)
|
|
$
|
44.62
|
|
|
|
|
|
||
Forfeited
|
(908
|
)
|
|
$
|
86.97
|
|
|
|
|
|
||
Expired
|
(864
|
)
|
|
$
|
81.79
|
|
|
|
|
|
||
Outstanding at December 31, 2018
|
22,909
|
|
|
$
|
71.15
|
|
|
4.08
|
|
$
|
165,245
|
|
Exercisable at December 31, 2018
|
11,436
|
|
|
$
|
72.69
|
|
|
2.23
|
|
$
|
73,784
|
|
Vested at December 31, 2018 and expected to vest in the future
|
22,532
|
|
|
$
|
71.18
|
|
|
4.05
|
|
$
|
163,596
|
|
|
|
|
|
|
|
|
|
12.
|
Shareholders’ Equity
|
|
|
|
|
||||
In billions
|
|
|
Remaining as of
|
||||
Authorization Date
|
Authorized
|
|
December 31, 2018
|
||||
November 2, 2016 (“2016 Repurchase Program”)
|
$
|
15.0
|
|
|
$
|
13.9
|
|
December 15, 2014 (“2014 Repurchase Program”)
|
10.0
|
|
|
—
|
|
||
|
|
|
|
In millions
|
|
||
Estimated minimum statutory surplus required by regulators
|
$
|
5,358
|
|
Investments on deposit with regulatory bodies
|
630
|
|
|
Estimated maximum dividend distributions permitted in 2019 without prior regulatory approval
|
584
|
|
|
|
|
13.
|
Other Comprehensive Income (Loss)
|
|
At December 31,
|
||||||||||
In millions
|
2018
|
|
2017
|
|
2016
|
||||||
Net unrealized investment gains (losses):
|
|
|
|
|
|
||||||
Beginning of year balance
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive income before reclassifications
($132 pretax)
|
97
|
|
|
—
|
|
|
—
|
|
|||
Amounts reclassified from accumulated other comprehensive income
($1 pretax)
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|||
Other comprehensive income
|
97
|
|
|
—
|
|
|
—
|
|
|||
End of year balance
|
97
|
|
|
—
|
|
|
—
|
|
|||
|
|
|
|
|
|
||||||
Foreign currency translation adjustments:
|
|
|
|
|
|
||||||
Beginning of year balance
|
(129
|
)
|
|
(127
|
)
|
|
(165
|
)
|
|||
Other comprehensive income (loss)
|
(29
|
)
|
|
(2
|
)
|
|
38
|
|
|||
Other comprehensive income (loss)
|
(29
|
)
|
|
(2
|
)
|
|
38
|
|
|||
End of year balance
|
(158
|
)
|
|
(129
|
)
|
|
(127
|
)
|
|||
|
|
|
|
|
|
||||||
Net cash flow hedges:
|
|
|
|
|
|
||||||
Beginning of year balance
|
(15
|
)
|
|
(5
|
)
|
|
(7
|
)
|
|||
Adoption of new accounting standard
(4)
|
(3
|
)
|
|
—
|
|
|
—
|
|
|||
Other comprehensive income (loss) before reclassifications
($465, $(18) and $0 pretax)
|
344
|
|
|
(11
|
)
|
|
—
|
|
|||
Amounts reclassified from accumulated other comprehensive loss
($(19), $2 and $3 pretax)
(2)
|
(14
|
)
|
|
1
|
|
|
2
|
|
|||
Other comprehensive income (loss)
|
330
|
|
|
(10
|
)
|
|
2
|
|
|||
End of year balance
|
312
|
|
|
(15
|
)
|
|
(5
|
)
|
|||
|
|
|
|
|
|
||||||
Pension and OPEB plans:
|
|
|
|
|
|
||||||
Beginning of year balance
|
(21
|
)
|
|
(173
|
)
|
|
(186
|
)
|
|||
Adoption of new accounting standard
(4)
|
(4
|
)
|
|
—
|
|
|
—
|
|
|||
Other comprehensive loss before reclassifications
($(178), $0 and $0 pretax)
|
(132
|
)
|
|
—
|
|
|
—
|
|
|||
Amounts reclassified from accumulated other comprehensive loss
($11, $249 and $21 pretax)
(3)
|
8
|
|
|
152
|
|
|
13
|
|
|||
Other comprehensive income (loss)
|
(124
|
)
|
|
152
|
|
|
13
|
|
|||
End of year balance
|
(149
|
)
|
|
(21
|
)
|
|
(173
|
)
|
|||
|
|
|
|
|
|
||||||
Total beginning of year accumulated other comprehensive loss
|
(165
|
)
|
|
(305
|
)
|
|
(358
|
)
|
|||
Adoption of new accounting standard
(4)
|
(7
|
)
|
|
—
|
|
|
—
|
|
|||
Total other comprehensive income
|
274
|
|
|
140
|
|
|
53
|
|
|||
Total end of year accumulated other comprehensive income (loss)
|
$
|
102
|
|
|
$
|
(165
|
)
|
|
$
|
(305
|
)
|
|
|
|
|
|
|
(1)
|
Amounts reclassified from accumulated other comprehensive income for debt securities are included in net investment income within the consolidated statements of operations.
|
(2)
|
Amounts reclassified from accumulated other comprehensive loss for specifically identified cash flow hedges are included within interest expense in the consolidated statements of operations.
|
(3)
|
Amounts reclassified from accumulated other comprehensive loss for specifically identified pension and other postretirement benefits are included in other (income) expense in the consolidated statements of operations.
|
(4)
|
See
Note 1 ‘‘Significant Accounting Policies’’
for additional information on the adoption of ASU 2018-02 during the first quarter of 2018.
|
14.
|
Earnings Per Share
|
In millions, except per share amounts
|
2018
|
|
2017
|
|
2016
|
||||||
Numerator for earnings per share calculation:
|
|
|
|
|
|
||||||
Income (loss) from continuing operations
|
$
|
(596
|
)
|
|
$
|
6,631
|
|
|
$
|
5,320
|
|
Income allocated to participating securities
|
(3
|
)
|
|
(24
|
)
|
|
(27
|
)
|
|||
Net (income) loss attributable to noncontrolling interests
|
2
|
|
|
(1
|
)
|
|
(2
|
)
|
|||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
(597
|
)
|
|
$
|
6,606
|
|
|
$
|
5,291
|
|
|
|
|
|
|
|
||||||
Denominator for earnings per share calculation:
|
|
|
|
|
|
||||||
Weighted average shares, basic
|
1,044
|
|
|
1,020
|
|
|
1,073
|
|
|||
Effect of dilutive securities
|
—
|
|
|
4
|
|
|
6
|
|
|||
Weighted average shares, diluted
|
1,044
|
|
|
1,024
|
|
|
1,079
|
|
|||
|
|
|
|
|
|
||||||
Earnings (loss) per share from continuing operations:
|
|
|
|
|
|
||||||
Basic
|
$
|
(0.57
|
)
|
|
$
|
6.48
|
|
|
$
|
4.93
|
|
Diluted
|
$
|
(0.57
|
)
|
|
$
|
6.45
|
|
|
$
|
4.91
|
|
|
|
|
|
|
|
15.
|
Reinsurance
|
In millions
|
|
||
Reinsurer
|
|
||
Hartford Life and Accident Insurance Company
|
$
|
3,470
|
|
Lincoln Life & Annuity Company of New York
|
424
|
|
|
Constitution Life
|
320
|
|
|
VOYA Retirement Insurance and Annuity Company
|
186
|
|
|
All Other
|
141
|
|
|
Total
|
$
|
4,541
|
|
|
|
|
|
||
In millions
|
|
||
Direct
|
$
|
8,365
|
|
Assumed
|
38
|
|
|
Ceded
|
(219
|
)
|
|
Net premiums
|
$
|
8,184
|
|
|
|
|
|
||
In millions
|
|
||
Direct
|
$
|
6,773
|
|
Assumed
|
32
|
|
|
Ceded
|
(211
|
)
|
|
Net benefit costs
|
$
|
6,594
|
|
|
|
16.
|
Commitments and Contingencies
|
•
|
ASC Claim Funding Accounts - The Company has arrangements with certain banks for the processing of claim payments for its ASC customers. The banks maintain accounts to fund claims of the Company’s ASC customers. The customer is responsible for funding the amount paid by the bank each day. In these arrangements, the Company guarantees that the banks will not sustain losses if the responsible ASC customer does not properly fund its account. The aggregate maximum exposure under these arrangements is generally limited to
$250 million
. The Company can limit its exposure to these guarantees by suspending the payment of claims for ASC customers that have not adequately funded the amount paid by the bank.
|
•
|
Separate Accounts Assets - Certain Separate Accounts assets associated with the large case pensions business in the Corporate/Other segment represent funds maintained as a contractual requirement to fund specific pension annuities that the Company has guaranteed. Minimum contractual obligations underlying the guaranteed benefits in these Separate Accounts were approximately
$1.4 billion
at
December 31, 2018
. See
Note 1 ‘‘Significant Accounting Policies’’
for additional information on Separate Accounts. Contract holders assume all investment and mortality risk and are required to maintain Separate Accounts balances at or above a specified level. The level of required funds is a function of the risk underlying the Separate Account’s investment strategy. If contract holders do not maintain the required level of Separate Accounts assets to meet the annuity guarantees, the Company would establish an additional liability. Contract holders’ balances in the Separate Accounts at
December 31, 2018
exceeded the value of the guaranteed benefit obligation. As a result, the Company was not required to maintain any additional liability for its related guarantees at
December 31, 2018
.
|
17.
|
Segment Reporting
|
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
(1)(2)
|
|
LTC
(2)
|
|
Benefits
(2)
|
|
Other
|
|
Eliminations
(2)
|
|
Totals
|
||||||||||||
2018:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from customers
|
$
|
134,115
|
|
|
$
|
83,989
|
|
|
$
|
5,504
|
|
|
$
|
4
|
|
|
$
|
(29,693
|
)
|
|
$
|
193,919
|
|
Net investment income
(3)
|
13
|
|
|
—
|
|
|
45
|
|
|
602
|
|
|
—
|
|
|
660
|
|
||||||
Total revenues
|
134,128
|
|
|
83,989
|
|
|
5,549
|
|
|
606
|
|
|
(29,693
|
)
|
|
194,579
|
|
||||||
Operating income (loss)
(4)(5)
|
4,699
|
|
|
620
|
|
|
276
|
|
|
(805
|
)
|
|
(769
|
)
|
|
4,021
|
|
||||||
Depreciation and amortization
|
712
|
|
|
1,698
|
|
|
170
|
|
|
138
|
|
|
—
|
|
|
2,718
|
|
||||||
Additions to property and equipment
|
326
|
|
|
1,350
|
|
|
46
|
|
|
401
|
|
|
—
|
|
|
2,123
|
|
||||||
2017:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from customers
|
130,596
|
|
|
79,398
|
|
|
—
|
|
|
—
|
|
|
(25,229
|
)
|
|
184,765
|
|
||||||
Net investment income
|
5
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
21
|
|
||||||
Total revenues
(7)
|
130,601
|
|
|
79,398
|
|
|
—
|
|
|
16
|
|
|
(25,229
|
)
|
|
184,786
|
|
||||||
Operating income (loss)
(4)(5)(7)
|
4,657
|
|
|
6,558
|
|
|
—
|
|
|
(936
|
)
|
|
(741
|
)
|
|
9,538
|
|
||||||
Depreciation and amortization
|
712
|
|
|
1,651
|
|
|
—
|
|
|
116
|
|
|
—
|
|
|
2,479
|
|
||||||
Additions to property and equipment
|
311
|
|
|
1,398
|
|
|
—
|
|
|
340
|
|
|
—
|
|
|
2,049
|
|
||||||
2016:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from customers
|
119,963
|
|
|
81,100
|
|
|
—
|
|
|
—
|
|
|
(23,537
|
)
|
|
177,526
|
|
||||||
Net investment income
|
2
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
20
|
|
||||||
Total revenues
(7)
|
119,965
|
|
|
81,100
|
|
|
—
|
|
|
18
|
|
|
(23,537
|
)
|
|
177,546
|
|
||||||
Operating income (loss)
(4)(5)(6)(7)
|
4,570
|
|
|
7,437
|
|
|
—
|
|
|
(900
|
)
|
|
(721
|
)
|
|
10,386
|
|
||||||
Depreciation and amortization
|
714
|
|
|
1,642
|
|
|
—
|
|
|
119
|
|
|
—
|
|
|
2,475
|
|
||||||
Additions to property and equipment
|
295
|
|
|
1,732
|
|
|
—
|
|
|
252
|
|
|
—
|
|
|
2,279
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total revenues of PSS include approximately
$11.4 billion
,
$10.8 billion
and
$10.5 billion
of Retail Co-Payments for
2018
,
2017
and
2016
, respectively. See
Note 1 ‘‘Significant Accounting Policies’’
for additional information about Retail Co-Payments.
|
(2)
|
Intersegment eliminations relate to intersegment revenue generating activities that occur between PSS and RLS for 2018, 2017 and 2016. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between HCBS, PSS and/or RLS.
|
(3)
|
Corporate/Other segment net investment income for
2018
includes interest income of
$536 million
related to the proceeds of the
$40 billion
2018 Notes. This amount is for the period prior to the close of the Aetna Acquisition, which occurred on November 28, 2018.
|
(4)
|
RLS operating income for
2018
,
2017
and
2016
includes
$7 million
,
$34 million
and
$281 million
, respectively, of acquisition-related integration costs. The integration costs in
2018
and
2017
are related to the acquisition of Omnicare. The integration costs in
2016
are related to the acquisitions of Omnicare and the pharmacy and clinic businesses of Target. RLS operating income for
2018
and
2017
also includes goodwill impairment charges of
$6.1 billion
related to the LTC reporting unit and
$181 million
related to the RxCrossroads reporting unit, respectively. In addition, RLS operating income for
2017
and
2016
includes
$215 million
and
$34 million
, respectively, of charges associated with store rationalization and asset impairment charges in connection with planned store closures related to the Company’s enterprise streamlining initiative. RLS operating income for 2018 also includes a
$43 million
loss on impairment of long-lived assets primarily related to the impairment of property and equipment and an
$86 million
loss on the divestiture of the Company’s RxCrossroads subsidiary.
|
(5)
|
Corporate/Other segment operating loss for
2018
,
2017
and
2016
includes
$485 million
,
$40 million
and
$10 million
, respectively, of divestiture and acquisition-related transaction and integration costs included in operating expenses in the consolidated statements of operations. The transaction and integration costs in 2018 are related to the acquisitions of Aetna and Omnicare. The transaction and integration costs in 2017 are related to the acquisitions of Aetna and Omnicare and the divestiture of RxCrossroads. The integration costs in 2016 are related to the acquisitions of Omnicare and the pharmacy and clinic businesses of Target.
|
(6)
|
PSS operating income for
2016
includes the reversal of an accrual of
$88 million
in connection with a legal settlement.
|
(7)
|
Amounts revised to reflect the reclassification of interest income from interest expense, net to net investment income within total revenues to conform with insurance company presentation which increased total revenues and operating income by
$21 million
and
$20 million
in 2017 and 2016, respectively.
|
|
Year Ended December 31, 2017
|
||||||||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||
In millions
|
Services
|
|
LTC
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||
Revenues, as previously reported
|
$
|
130,596
|
|
|
$
|
79,398
|
|
|
$
|
—
|
|
|
$
|
(25,229
|
)
|
|
$
|
184,765
|
|
Adjustments
|
5
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
21
|
|
|||||
Revenues, as adjusted
|
$
|
130,601
|
|
|
$
|
79,398
|
|
|
$
|
16
|
|
|
$
|
(25,229
|
)
|
|
$
|
184,786
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
(1)
|
$
|
121,746
|
|
|
$
|
56,081
|
|
|
$
|
—
|
|
|
$
|
(24,417
|
)
|
|
$
|
153,410
|
|
Adjustments
|
53
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
38
|
|
|||||
Cost of products sold
|
$
|
121,799
|
|
|
$
|
56,066
|
|
|
$
|
—
|
|
|
$
|
(24,417
|
)
|
|
$
|
153,448
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Benefit costs
(1)
|
$
|
2,810
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,810
|
|
Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Benefit costs
|
$
|
2,810
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,810
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating expenses, as previously reported
|
$
|
1,285
|
|
|
$
|
16,848
|
|
|
$
|
966
|
|
|
$
|
(71
|
)
|
|
$
|
19,028
|
|
Adjustments
|
50
|
|
|
(74
|
)
|
|
(14
|
)
|
|
—
|
|
|
(38
|
)
|
|||||
Operating expenses, as adjusted
|
$
|
1,335
|
|
|
$
|
16,774
|
|
|
$
|
952
|
|
|
$
|
(71
|
)
|
|
$
|
18,990
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income (loss), as previously reported
|
$
|
4,755
|
|
|
$
|
6,469
|
|
|
$
|
(966
|
)
|
|
$
|
(741
|
)
|
|
$
|
9,517
|
|
Adjustments
|
(98
|
)
|
|
89
|
|
|
30
|
|
|
—
|
|
|
21
|
|
|||||
Operating income (loss), as adjusted
|
$
|
4,657
|
|
|
$
|
6,558
|
|
|
$
|
(936
|
)
|
|
$
|
(741
|
)
|
|
$
|
9,538
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
||||||||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||
In millions
|
Services
|
|
LTC
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||
Revenues, as previously reported
|
$
|
119,963
|
|
|
$
|
81,100
|
|
|
$
|
—
|
|
|
$
|
(23,537
|
)
|
|
$
|
177,526
|
|
Adjustments
|
2
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
20
|
|
|||||
Revenues, as adjusted
|
$
|
119,965
|
|
|
$
|
81,100
|
|
|
$
|
18
|
|
|
$
|
(23,537
|
)
|
|
$
|
177,546
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
(1)
|
$
|
111,883
|
|
|
$
|
57,362
|
|
|
$
|
—
|
|
|
$
|
(22,755
|
)
|
|
$
|
146,490
|
|
Adjustments
|
66
|
|
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
43
|
|
|||||
Cost of products sold
|
$
|
111,949
|
|
|
$
|
57,339
|
|
|
$
|
—
|
|
|
$
|
(22,755
|
)
|
|
$
|
146,533
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Benefit costs
(1)
|
$
|
2,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,179
|
|
Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Benefit costs
|
$
|
2,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,179
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating expenses, as previously reported
|
$
|
1,225
|
|
|
$
|
16,436
|
|
|
$
|
891
|
|
|
$
|
(61
|
)
|
|
$
|
18,491
|
|
Adjustments
|
42
|
|
|
(112
|
)
|
|
27
|
|
|
—
|
|
|
(43
|
)
|
|||||
Operating expenses, as adjusted
|
$
|
1,267
|
|
|
$
|
16,324
|
|
|
$
|
918
|
|
|
$
|
(61
|
)
|
|
$
|
18,448
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating income (loss), as previously reported
|
$
|
4,676
|
|
|
$
|
7,302
|
|
|
$
|
(891
|
)
|
|
$
|
(721
|
)
|
|
$
|
10,366
|
|
Adjustments
|
(106
|
)
|
|
135
|
|
|
(9
|
)
|
|
—
|
|
|
20
|
|
|||||
Operating income (loss), as adjusted
|
$
|
4,570
|
|
|
$
|
7,437
|
|
|
$
|
(900
|
)
|
|
$
|
(721
|
)
|
|
$
|
10,386
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
Quarterly Financial Information (Unaudited)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
||||||||||
In millions, except per share amounts
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
|
||||||||||
2018:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total revenues
(1)
|
$
|
45,743
|
|
|
$
|
46,922
|
|
|
$
|
47,490
|
|
|
$
|
54,424
|
|
|
$
|
194,579
|
|
Operating income (loss)
(1)
|
1,996
|
|
|
(1,373
|
)
|
|
2,574
|
|
|
824
|
|
|
4,021
|
|
|||||
Income (loss) from continuing operations
|
998
|
|
|
(2,562
|
)
|
|
1,390
|
|
|
(422
|
)
|
|
(596
|
)
|
|||||
Net income (loss) attributable to CVS Health
|
998
|
|
|
(2,563
|
)
|
|
1,390
|
|
|
(419
|
)
|
|
(594
|
)
|
|||||
Per common share data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
0.98
|
|
|
$
|
(2.52
|
)
|
|
$
|
1.36
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.57
|
)
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
0.98
|
|
|
$
|
(2.52
|
)
|
|
$
|
1.36
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.57
|
)
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
0.98
|
|
|
$
|
(2.52
|
)
|
|
$
|
1.36
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.57
|
)
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
0.98
|
|
|
$
|
(2.52
|
)
|
|
$
|
1.36
|
|
|
$
|
(0.37
|
)
|
|
$
|
(0.57
|
)
|
Dividends per common share
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Effective for the fourth quarter of 2018, interest income was reclassified from interest expense, net to net investment income within revenues to conform with insurance company presentation. Accordingly, a retrospective reclassification of
$50 million
,
$214 million
and
$221 million
was made for the first, second and third quarters of 2018, respectively, to increase revenues and increase interest expense.
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
||||||||||
In millions, except per share amounts
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
|
||||||||||
2017:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total revenues
(1)
|
$
|
44,520
|
|
|
$
|
45,689
|
|
|
$
|
46,186
|
|
|
$
|
48,391
|
|
|
$
|
184,786
|
|
Operating income
(1)
|
1,799
|
|
|
2,121
|
|
|
2,504
|
|
|
3,114
|
|
|
9,538
|
|
|||||
Income from continuing operations
|
962
|
|
|
1,097
|
|
|
1,285
|
|
|
3,287
|
|
|
6,631
|
|
|||||
Net income attributable to CVS Health
|
952
|
|
|
1,098
|
|
|
1,285
|
|
|
3,287
|
|
|
6,622
|
|
|||||
Per common share data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income from continuing operations attributable to CVS Health
|
$
|
0.93
|
|
|
$
|
1.07
|
|
|
$
|
1.26
|
|
|
$
|
3.23
|
|
|
$
|
6.48
|
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
Net income attributable to CVS Health
|
$
|
0.92
|
|
|
$
|
1.07
|
|
|
$
|
1.26
|
|
|
$
|
3.23
|
|
|
$
|
6.47
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income from continuing operations attributable to CVS Health
|
$
|
0.92
|
|
|
$
|
1.07
|
|
|
$
|
1.26
|
|
|
$
|
3.22
|
|
|
$
|
6.45
|
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
Net income attributable to CVS Health
|
$
|
0.92
|
|
|
$
|
1.07
|
|
|
$
|
1.26
|
|
|
$
|
3.22
|
|
|
$
|
6.44
|
|
Dividends per common share
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Effective for the fourth quarter of 2018, interest income was reclassified from interest expense, net to net investment income within revenues to conform with insurance company presentation. Accordingly, a retrospective reclassification of
$6 million
,
$4 million
,
$5 million
and
$6 million
was made for the first, second, third and fourth quarters of 2017, respectively, to increase revenues and increase interest expense.
|
In millions, except per share amounts
|
2018
(2)
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
||||||||||
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total revenues
(1)
|
$
|
194,579
|
|
|
$
|
184,786
|
|
|
$
|
177,546
|
|
|
$
|
153,311
|
|
|
$
|
139,382
|
|
Operating income
(1)
|
4,021
|
|
|
9,538
|
|
|
10,386
|
|
|
9,496
|
|
|
8,837
|
|
|||||
Income (loss) from continuing operations
|
(596
|
)
|
|
6,631
|
|
|
5,320
|
|
|
5,230
|
|
|
4,645
|
|
|||||
Net income (loss) attributable to CVS Health
|
(594
|
)
|
|
6,622
|
|
|
5,317
|
|
|
5,237
|
|
|
4,644
|
|
|||||
Per common share data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.48
|
|
|
$
|
4.93
|
|
|
$
|
4.65
|
|
|
$
|
3.98
|
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.47
|
|
|
$
|
4.93
|
|
|
$
|
4.66
|
|
|
$
|
3.98
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.45
|
|
|
$
|
4.91
|
|
|
$
|
4.62
|
|
|
$
|
3.96
|
|
Income (loss) from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
Net income (loss) attributable to CVS Health
|
$
|
(0.57
|
)
|
|
$
|
6.44
|
|
|
$
|
4.90
|
|
|
$
|
4.63
|
|
|
$
|
3.96
|
|
Dividends per common share
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
$
|
1.70
|
|
|
$
|
1.40
|
|
|
$
|
1.10
|
|
Balance sheet and other data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
$
|
196,456
|
|
|
$
|
95,131
|
|
|
$
|
94,462
|
|
|
$
|
92,437
|
|
|
$
|
73,202
|
|
Long-term debt
|
$
|
71,444
|
|
|
$
|
22,181
|
|
|
$
|
25,615
|
|
|
$
|
26,267
|
|
|
$
|
11,630
|
|
Total shareholders’ equity
|
$
|
58,543
|
|
|
$
|
37,695
|
|
|
$
|
36,834
|
|
|
$
|
37,203
|
|
|
$
|
37,963
|
|
Number of stores (at end of year)
|
9,967
|
|
|
9,846
|
|
|
9,750
|
|
|
9,681
|
|
|
7,866
|
|
|||||
|
|
|
|
|
|
|
|
|
|
(1)
|
Effective for the fourth quarter of 2018, interest income was reclassified from interest expense, net to net investment income within revenues to conform with insurance company presentation. Accordingly, a retrospective reclassification of $21 million, $20 million, $21 million and $15 million was made for years ended December 31, 2017, 2016, 2015 and 2014, respectively, to increase revenues and increase interest expense.
|
(2)
|
On November 28, 2018, the Company acquired Aetna. Aetna’s operations are included in the Company’s consolidated financial statements for the period from November 28, 2018 to December 31, 2018 and the period then ended. See
Note 2 ‘‘Acquisition of Aetna’’
of Notes to Consolidated Financial Statements for additional information.
|
•
|
CVS Foreign, Inc. (New York)
|
•
|
CVS Caremark Indemnity Ltd. (Bermuda)
|
•
|
CVS International, L.L.C. (Delaware)
|
•
|
CVS Pharmacy, Inc. (Rhode Island)
|
•
|
Aetna Inc. (Pennsylvania)
|
•
|
Aetna Health Holdings, LLC (Delaware)
|
•
|
Aetna Health of California Inc. (California)
|
•
|
Aetna Health Inc. (Connecticut)
|
•
|
Aetna Health Inc. (Florida)
|
•
|
Aetna Health Inc. (Georgia)
|
•
|
Aetna Health Inc. (Maine)
|
•
|
Aetna Health Inc. (Michigan)
|
•
|
Aetna Health Inc. (New Jersey)
|
•
|
Aetna Health Inc. (New York)
|
•
|
Aetna Better Health Inc. (New York)
|
•
|
Aetna Health Inc. (Pennsylvania)
|
•
|
Aetna Health Inc. (Texas)
|
•
|
Aetna Better Health of California Inc. (California)
|
•
|
Aetna Better Health of Iowa Inc. (Iowa)
|
•
|
Aetna Better Health of Texas Inc. (Texas)
|
•
|
Aetna Better Health of Washington, Inc. (Washington)
|
•
|
Aetna Better Health Inc. (Georgia)
|
•
|
Aetna HealthAssurance Pennsylvania, Inc. (Pennsylvania)
|
•
|
Aetna Dental of California Inc. (California)
|
•
|
Aetna Dental Inc. (New Jersey)
|
•
|
Aetna Dental Inc. (Texas)
|
•
|
Aetna Rx Home Delivery, LLC (Delaware)
|
•
|
Aetna Health Management, LLC (Delaware)
|
•
|
Aetna Ireland Inc. (Delaware)
|
•
|
Aetna Specialty Pharmacy, LLC (Delaware)
|
•
|
Cofinity, Inc. (Delaware)
|
•
|
@Credentials Inc. (Delaware)
|
•
|
Aetna Better Health Inc. (Pennsylvania)
|
•
|
Aetna Better Health Inc. (Connecticut)
|
•
|
Aetna Better Health Inc. (Illinois)
|
•
|
Aetna Better Health of Kansas Inc. (Kansas)
|
•
|
Aetna Better Health, Inc. (Louisiana)
|
•
|
Aetna Florida Inc. (Florida)
|
•
|
Aetna Better Health Inc. (Ohio)
|
•
|
Aetna Better Health of Oklahoma Inc. (Oklahoma)
|
•
|
Aetna Better Health of Nevada Inc. (Nevada)
|
•
|
Aetna Better Health Inc. (New Jersey)
|
•
|
Aetna Better Health of North Carolina Inc. (North Carolina)
|
•
|
Aetna Network Services LLC (Connecticut)
|
•
|
Aetna Risk Assurance Company of Connecticut Inc. (Connecticut)
|
•
|
Aetna Student Health Agency Inc. (Massachusetts)
|
•
|
Delaware Physicians Care, Incorporated (Delaware)
|
•
|
Schaller Anderson Medical Administrators, Incorporated (Delaware)
|
•
|
Aetna Medicaid Administrators LLC (Arizona)
|
•
|
iTriage, LLC (Delaware)
|
•
|
bswift LLC (Illinois)
|
•
|
Prodigy Health Group, Inc. (Delaware)
|
•
|
Niagara Re, Inc. (New York)
|
•
|
Performax, Inc. (Delaware)
|
•
|
Scrip World, LLC (Utah)
|
•
|
Precision Benefit Services, Inc. (Delaware)
|
•
|
American Health Holding, Inc. (Ohio)
|
•
|
Meritain Health, Inc. (New York)
|
•
|
Administrative Enterprises, Inc. (Arizona)
|
•
|
U.S Healthcare Holdings, LLC (Ohio)
|
•
|
Prime Net, Inc. (Ohio)
|
•
|
Professional Risk Management, Inc. (Ohio)
|
•
|
ADMINCO, Inc. (Arizona)
|
•
|
Aetna Pharmacy Management Services, LLC (Delaware)
|
•
|
Coventry Transplant Network, Inc. (Delaware)
|
•
|
Aetna Health of Iowa Inc. (Iowa)
|
•
|
Coventry Health Care of Nebraska, Inc. (Nebraska)
|
•
|
Aetna Health Inc. (Louisiana)
|
•
|
HealthAssuance Pennsylvania, Inc. (Pennsylvania)
|
•
|
Coventry Prescription Management Services Inc. (Nevada)
|
•
|
Coventry Health and Life Insurance Company (Missouri)
|
•
|
Aetna Better Health of Kentucky Insurance Company (Kentucky)
|
•
|
Coventry Health Care of Virginia, Inc. (Virginia)
|
•
|
Coventry Health Care of Missouri, Inc. (Missouri)
|
•
|
Aetna Better Health of Missouri LLC (Missouri)
|
•
|
Coventry Health Care of Illinois, Inc. (Illinois)
|
•
|
Coventry Health Care of West Virginia, Inc. (West Virginia)
|
•
|
Coventry HealthCare Management Corporation (Delaware)
|
•
|
Coventry Health Care of Kansas, Inc. (Kansas)
|
•
|
Coventry Health Care National Accounts, Inc. (Delaware)
|
•
|
Aetna Better Health of Michigan Inc. (Michigan)
|
•
|
Aetna Health of Utah Inc. (Utah)
|
•
|
Aetna Better Health Inc. (Tennessee)
|
•
|
Coventry Health Care National Network, Inc. (Delaware)
|
•
|
Coventry Consumer Advantage, Inc. (Delaware)
|
•
|
MHNet Specialty Services, LLC (Maryland)
|
•
|
Mental Health Network of New York IPA, Inc. (New York)
|
•
|
Mental Health Associates, Inc. (Louisiana)
|
•
|
MHNet of Florida, Inc. (Florida)
|
•
|
MHNet Life and Health Insurance Company (Texas)
|
•
|
Group Dental Service, Inc. (Maryland)
|
•
|
Group Dental Service of Maryland, Inc. (Maryland)
|
•
|
Florida Health Plan Administrators, LLC (Florida)
|
•
|
Coventry Health Care of Florida, Inc. (Florida)
|
•
|
Carefree Insurance Services, Inc. (Florida)
|
•
|
Coventry Health Plan of Florida, Inc. (Florida)
|
•
|
First Health Group Corp. (Delaware)
|
•
|
First Health Life & Health Insurance Company (Texas)
|
•
|
Claims Administration Corp. (Maryland)
|
•
|
Coventry Health Care Workers' Compensation, Inc. (Delaware)
|
•
|
Coventry Rehabilitation Services, Inc. (Delaware)
|
•
|
First Script Network Services, Inc. (Nevada)
|
•
|
FOCUS HealthCare Management, Inc. (Tennessee)
|
•
|
Medical Examinations of New York, P.C. (New York)
|
•
|
MetraComp, Inc. (Connecticut)
|
•
|
Continental Life Insurance Company of Brentwood, Tennessee (Tennessee)
|
•
|
American Continental Insurance Company (Tennessee)
|
•
|
Aetna Life Insurance Company (Connecticut)
|
•
|
AHP Holdings, Inc. (Connecticut)
|
•
|
Aetna Insurance Company of Connecticut (Connecticut)
|
•
|
AE Fourteen, Incorporated (Connecticut)
|
•
|
Aetna Life Assignment Company (Connecticut)
|
•
|
Aetna ACO Holdings Inc. (Delaware)
|
•
|
Innovation Health Holdings, LLC (Delaware)
|
•
|
Innovation Health Insurance Company (Virginia)
|
•
|
Innovation Health Plan, Inc. (Virginia)
|
•
|
Texas Health + Aetna Health Insurance Holding Company LLC (Texas)
|
•
|
Texas Health + Aetna Health Insurance Company (Texas)
|
•
|
Texas Health + Aetna Health Plan Inc. (Texas)
|
•
|
Banner Health and Aetna Health Insurance Holding Company LLC (Delaware)
|
•
|
Banner Health and Aetna Health Insurance Company (Arizona)
|
•
|
Banner Health and Aetna Health Plan Inc. (Arizona)
|
•
|
Sutter Health and Aetna Insurance Holding Company LLC (Delaware)
|
•
|
Sutter Health and Aetna Administrative Services LLC (Delaware)
|
•
|
Sutter Health and Aetna Insurance Company (California)
|
•
|
Allina Health and Aetna Insurance Holding Company LLC (Delaware)
|
•
|
Allina Health and Aetna Insurance Company (Minnesota)
|
•
|
PE Holdings, LLC (Connecticut)
|
•
|
Aetna Resources LLC (Delaware)
|
•
|
Canal Place, LLC (Delaware)
|
•
|
Aetna Ventures, LLC (Delaware)
|
•
|
Broadspire National Services, Inc. (Florida)
|
•
|
Aetna Multi-Strategy 1099 Fund, LLC (Delaware)
|
•
|
Phoenix Data Solutions LLC (Delaware)
|
•
|
Aetna Financial Holdings, LLC (Delaware)
|
•
|
Aetna Asset Advisors, LLC (Delaware)
|
•
|
U.S. Healthcare Properties, Inc. (Pennsylvania)
|
•
|
Aetna Capital Management, LLC (Delaware)
|
•
|
Aetna Partners Diversified Fund, LLC (Delaware)
|
•
|
Aetna Workers' Comp Access, LLC (Delaware)
|
•
|
Aetna Behavioral Health, LLC (Delaware)
|
•
|
Managed Care Coordinators, Inc. (Delaware)
|
•
|
Horizon Behavioral Services, LLC (Delaware)
|
•
|
Employee Assistance Services, LLC (Kentucky)
|
•
|
Health and Human Resource Center, Inc. (California)
|
•
|
Resources for Living, LLC (Texas)
|
•
|
The Vasquez Group Inc. (Illinois)
|
•
|
Work and Family Benefits, Inc. (New Jersey)
|
•
|
Aetna Card Solutions, LLC (Connecticut)
|
•
|
PayFlex Holdings, Inc. (Delaware)
|
•
|
PayFlex Systems USA, Inc. (Nebraska)
|
•
|
Aetna Health and Life lnsurance Company (Connecticut)
|
•
|
Aetna Health Insurance Company (Pennsylvania)
|
•
|
Aetna Health Insurance Company of New York (New York)
|
•
|
AUSHC Holdings, Inc. (Connecticut)
|
•
|
PHPSNE Parent Corporation (Delaware)
|
•
|
Active Health Management, Inc. (Delaware)
|
•
|
Health Data & Management Solutions, Inc. (Delaware)
|
•
|
Futrix Limited (New Zealand)
|
•
|
Aetna Integrated Informatics, Inc. (Pennsylvania)
|
•
|
Health Re, Inc. (Vermont)
|
•
|
ASI Wings, LLC (Delaware)
|
•
|
Healthagen LLC
|
•
|
Aetna Corporate Services LLC (Delaware)
|
•
|
Echo Merger Sub, Inc. (Delaware)
|
•
|
Aetna International Inc. (Connecticut)
|
•
|
Aetna Life & Casualty (Bermuda) Ltd. (Bermuda)
|
•
|
Aetna Global Holdings Limited (England & Wales)
|
•
|
Aetna Insurance (Hong Kong) Limited(Hong Kong)
|
•
|
Virtual Home Healthcare LLC (Dubai)
|
•
|
Aetna Korea Ltd. (South Korea)
|
•
|
Minor Health Entreprise Co, Ltd.
|
•
|
Health Care Management Co. Ltd.
|
•
|
Aetna Services (Thailand) Limited
|
•
|
Aetna Health Insurance (Thailand) Public Company Limited
|
•
|
Aetna Holdings (Thailand) Limited
|
•
|
Health Care Management Co. Ltd.
|
•
|
Minor Health Entreprise Co, Ltd.
|
•
|
Aetna Health Insurance (Thailand) Public Company Limited
|
•
|
Aetna Global Benefits (Bermuda) Limited (Bermuda)
|
•
|
Goodhealth Worldwide (Global) Limited (Bermuda)
|
•
|
Aetna Global Benefits (Europe) Limited (England & Wales)
|
•
|
Aetna Global Benefits (Asia Pacific) Limited (Hong Kong)
|
•
|
Goodhealth Worldwide (Asia) Limited (Hong Kong)
|
•
|
Aetna Global Benefits Limited (DIFC, UAE)
|
•
|
Aetna Global Benefits (Middle East) LLC (UAE)
|
•
|
Pt. Aetna Global Benefits Indonesia (Indonesia)
|
•
|
Aetna Global Benefits (Bahamas) Limited (Bahamas)
|
•
|
Spinnaker Topco Limited (Bermuda)
|
•
|
Spinnaker Bidco Limited (England and Wales)
|
•
|
Aetna Holdco (UK) Limited (England and Wales)
|
•
|
Aetna Global Benefits (UK) Limited (England and Wales)
|
•
|
Aetna Insurance Company Limited (England and Wales)
|
•
|
Aetna Insurance (Singapore) Pte. Ltd. (Singapore)
|
•
|
Aetna Health Insurance Company of Europe DAC (Ireland)
|
•
|
Aetna (Shanghai) Enterprise Services Co. Ltd. (China)
|
•
|
Aetna (Beijing) Enterprise Management Services Co., Ltd. (China)
|
•
|
Aetna Global Benefits (Singapore) PTE. LTD. (Singapore)
|
•
|
Indian Health Organisation Private Limited (India)
|
•
|
PT Aetna Management Consulting
|
•
|
Tianjin An Hai Tai Hua Medical Information Technology Co., Ltd (China)
|
•
|
CVS Pharmacy, Inc. (continued)
|
•
|
Alabama CVS Pharmacy, L.L.C. (Alabama)
|
•
|
Alaska CVS Pharmacy, L.L.C. (Alaska)
|
•
|
American Drug Stores Delaware, L.L.C. (Delaware)
|
•
|
Arkansas CVS Pharmacy, L.L.C. (Arkansas)
|
•
|
CareCenter Pharmacy, L.L.C. (Delaware)
|
•
|
Caremark Rx, L.L.C. (Delaware)
|
•
|
CaremarkPCS, L.L.C. (Delaware)
|
•
|
Accordant Health Services, L.L.C. (Delaware)
|
•
|
AdvancePCS SpecialtyRx, LLC (Delaware)
|
•
|
AdvanceRx.com, L.L.C. (Delaware)
|
•
|
CaremarkPCS Health, L.L.C. (Delaware)
|
▪
|
Caremark IPA, L.L.C. (New York)
|
•
|
Caremark PhC, L.L.C. (Delaware)
|
•
|
Caremark Ulysses Holding Corp. (New York)
|
•
|
MemberHealth LLC (Delaware)
|
•
|
UAC Holding, Inc. (Delaware)
|
▪
|
Pennsylvania Life Insurance Company (Pennsylvania)
|
•
|
Caremark, L.L.C. (California)
|
•
|
Caremark Arizona Mail Pharmacy, LLC (Arizona)
|
•
|
Caremark Arizona Specialty Pharmacy, L.L.C. (Arizona)
|
•
|
Caremark California Specialty Pharmacy, L.L.C. (California)
|
•
|
Caremark Florida Mail Pharmacy, LLC (Florida)
|
•
|
Caremark Florida Specialty Pharmacy, LLC (Florida)
|
•
|
Caremark Hawaii Mail Pharmacy, L.L.C. (Hawaii)
|
•
|
Caremark Hawaii Specialty Pharmacy, LLC (Hawaii)
|
•
|
Caremark Illinois Mail Pharmacy, LLC (Illinois)
|
•
|
CVS Caremark Advanced Technology Pharmacy, L.L.C. (Illinois)
|
•
|
Caremark Illinois Specialty Pharmacy, LLC (Illinois)
|
•
|
Caremark Irving Resource Center, LLC (Texas)
|
•
|
Caremark Kansas Specialty Pharmacy, LLC (Kansas)
|
•
|
Caremark Logistics, LLC (Delaware)
|
•
|
Caremark Louisiana Specialty Pharmacy, LLC (Louisiana)
|
•
|
Caremark Maryland Specialty Pharmacy, LLC (Maryland)
|
•
|
Caremark Massachusetts Specialty Pharmacy, L.L.C. (Massachusetts)
|
•
|
Caremark Michigan Specialty Pharmacy, LLC (Michigan)
|
•
|
Caremark Minnesota Specialty Pharmacy, LLC (Minnesota)
|
•
|
Caremark New Jersey Specialty Pharmacy, LLC (New Jersey)
|
•
|
Caremark North Carolina Specialty Pharmacy, LLC (North Carolina)
|
•
|
Caremark Ohio Specialty Pharmacy, L.L.C. (Ohio)
|
•
|
Caremark Pennsylvania Specialty Pharmacy, LLC (Pennsylvania)
|
•
|
Caremark Redlands Pharmacy, L.L.C. (California)
|
•
|
Caremark Repack, LLC (Illinois)
|
•
|
Caremark Tennessee Specialty Pharmacy, LLC (Tennessee)
|
•
|
Caremark Texas Mail Pharmacy, LLC (Texas)
|
•
|
Caremark Texas Specialty Pharmacy, LLC (Texas)
|
•
|
Caremark Washington Specialty Pharmacy, LLC (Washington)
|
•
|
Central Rx Services, LLC (Nevada)
|
•
|
Generation Health, L.L.C. (Delaware)
|
•
|
NovoLogix, LLC (Delaware)
|
•
|
CaremarkPCS Alabama Mail Pharmacy, LLC (Alabama)
|
•
|
CaremarkPCS, L.L.C. (Delaware)
|
•
|
CVS Caremark Part D Services, L.L.C. (Delaware)
|
•
|
Eckerd Corporation of Florida, Inc. (Florida)
|
•
|
Express Pharmacy Services of PA, L.L.C. (Delaware)
|
•
|
Ocean Acquisition Sub, L.L.C. (Delaware)
|
•
|
Coram LLC (Delaware)
|
•
|
Coram Clinical Trials, Inc. (Delaware)
|
•
|
T2 Medical, Inc. (Delaware)
|
▪
|
Coram Healthcare Corporation of Alabama (Delaware)
|
▪
|
Coram Healthcare Corporation of Florida (Delaware)
|
▪
|
Coram Healthcare Corporation of Greater D.C. (Delaware)
|
▪
|
Coram Healthcare Corporation of Greater New York (New York)
|
▪
|
Coram Healthcare Corporation of Indiana (Delaware)
|
▪
|
Coram Healthcare Corporation of Mississippi (Delaware)
|
▪
|
Coram Healthcare Corporation of Nevada (Delaware)
|
▪
|
Coram Healthcare Corporation of Northern California (Delaware)
|
▪
|
Coram Healthcare Corporation of Southern California (Delaware)
|
▪
|
Coram Healthcare Corporation of Southern Florida (Delaware)
|
▪
|
Coram Specialty Infusion Services, L.L.C. (Delaware)
|
•
|
Coram Rx, LLC (Delaware)
|
•
|
Coram Healthcare Corporation of North Texas (Delaware)
|
•
|
Coram Healthcare Corporation of Utah (Delaware)
|
•
|
Coram Healthcare Corporation of Massachusetts (Delaware)
|
▪
|
Coram Alternate Site Services, Inc. (Delaware)
|
•
|
Geneva Woods Management, LLC (Delaware)
|
•
|
Part D Holding Company, L.L.C. (Delaware)
|
•
|
Accendo Insurance Company (Utah)
|
•
|
Silverscript Insurance Company (Tennessee)
|
•
|
Connecticut CVS Pharmacy, L.L.C. (Connecticut)
|
•
|
CVS 2948 Henderson, L.L.C. (Nevada)
|
•
|
CVS AL Distribution, L.L.C. (Alabama)
|
•
|
CVS Albany, L.L.C. (New York)
|
•
|
CVS AOC Services, L.L.C. (Delaware)
|
•
|
CVS Indiana, L.L.C. (Indiana)
|
•
|
CVS International, L.L.C. (Delaware)
|
•
|
CCI Foreign, S’arl (R.C.S. Luxembourg)
|
▪
|
Beauty Holdings, L.L.C. (Delaware)
|
•
|
Drogaria Onofre Ltda. (Brazil)
|
•
|
Pamplona Saúde e Beleza LTDA (Brazil)
|
•
|
CVS Kidney Care, LLC (Delaware)
|
•
|
CVS Manchester NH, L.L.C. (New Hampshire)
|
•
|
CVS Michigan, L.L.C. (Michigan)
|
•
|
CVS Orlando FL Distribution, L.L.C. (Florida)
|
•
|
CVS PA Distribution, L.L.C. (Pennsylvania)
|
•
|
CVS PR Center, Inc. (Delaware)
|
•
|
Puerto Rico CVS Pharmacy, L.L.C. (Puerto Rico)
|
•
|
Caremark Puerto Rico, L.L.C. (Puerto Rico)
|
•
|
Caremark Puerto Rico Specialty Pharmacy, L.L.C. (Puerto Rico)
|
•
|
CVS RS Arizona, L.L.C. (Arizona)
|
•
|
Arizona CVS Stores, L.L.C. (Arizona)
|
•
|
CVS 3268 Gilbert, L.L.C. (Arizona)
|
•
|
CVS 3745 Peoria, L.L.C. (Arizona)
|
•
|
CVS Gilbert 3272, L.L.C. (Arizona)
|
•
|
CVS Rx Services, Inc. (New York)
|
•
|
Busse CVS, L.L.C. (Illinois)
|
•
|
Goodyear CVS, L.L.C. (Arizona)
|
•
|
Sheffield Avenue CVS, L.L.C. (Illinois)
|
•
|
South Wabash CVS, L.L.C. (Illinois)
|
•
|
Thomas Phoenix CVS, L.L.C. (Arizona)
|
•
|
Washington Lamb CVS, L.L.C. (Nevada)
|
•
|
CVS SC Distribution, L.L.C. (South Carolina)
|
•
|
CVS State Capital, L.L.C. (Maine)
|
•
|
CVS TN Distribution, L.L.C. (Tennessee)
|
•
|
CVS Transportation, L.L.C. (Indiana)
|
•
|
CVS Vero FL Distribution, L.L.C. (Florida)
|
•
|
D.A.W., LLC (Massachusetts)
|
•
|
Delaware CVS Pharmacy, L.L.C. (Delaware)
|
•
|
Digital eHealth, LLC (Rhode Island)
|
•
|
District of Columbia CVS Pharmacy, L.L.C. (District of Columbia)
|
•
|
Enterprise Patient Safety Organization, LLC (Rhode Island)
|
•
|
E.T.B., INC. (Texas)
|
•
|
Garfield Beach CVS, L.L.C. (California)
|
•
|
Georgia CVS Pharmacy, L.L.C. (Georgia)
|
•
|
German Dobson CVS, L.L.C. (Arizona)
|
•
|
Grand St. Paul CVS, L.L.C. (Minnesota)
|
•
|
Highland Park CVS, L.L.C. (Illinois)
|
•
|
Holiday CVS, L.L.C. (Florida)
|
•
|
Hook-SupeRx, L.L.C. (Delaware)
|
•
|
Idaho CVS Pharmacy, L.L.C. (Idaho)
|
•
|
Iowa CVS Pharmacy, L.L.C. (Iowa)
|
•
|
Kansas CVS Pharmacy, L.L.C. (Kansas)
|
•
|
Kentucky CVS Pharmacy, L.L.C. (Kentucky)
|
•
|
Longs Drug Stores California, L.L.C. (California)
|
•
|
Louisiana CVS Pharmacy, L.L.C. (Louisiana)
|
•
|
Maryland CVS Pharmacy, L.L.C. (Maryland)
|
•
|
Melville Realty Company, Inc. (New York)
|
•
|
CVS Bellmore Avenue, L.L.C. (New York)
|
•
|
MinuteClinic, L.L.C. (Delaware)
|
•
|
MinuteClinic Diagnostic of Alabama, L.L.C. (Alabama)
|
•
|
MinuteClinic Diagnostic of Arizona, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Florida, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Georgia, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Hawaii, L.L.C. (Hawaii)
|
•
|
MinuteClinic Diagnostic of Illinois, LLC (Delaware)
|
•
|
MinuteClinic Diagnostic of Kentucky, L.L.C. (Kentucky)
|
•
|
MinuteClinic Diagnostic of Louisiana, L.L.C. (Louisiana)
|
•
|
MinuteClinic Diagnostic of Maine, L.L.C. (Maine)
|
•
|
MinuteClinic Diagnostic of Maryland, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Massachusetts, LLC (Massachusetts)
|
•
|
MinuteClinic Diagnostic of Nebraska, L.L.C. (Nebraska)
|
•
|
MinuteClinic Diagnostic of New Hampshire, L.L.C. (New Hampshire)
|
•
|
MinuteClinic Diagnostic of New Mexico, L.L.C. (New Mexico)
|
•
|
MinuteClinic Diagnostic of Ohio, LLC (Ohio)
|
•
|
MinuteClinic Diagnostic of Oklahoma, LLC (Oklahoma)
|
•
|
MinuteClinic Diagnostic of Oregon, LLC (Oregon)
|
•
|
MinuteClinic Diagnostic of Pennsylvania, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Rhode Island, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of South Carolina, L.L.C. (South Carolina)
|
•
|
MinuteClinic Diagnostic of Texas, LLC (Minnesota)
|
•
|
MinuteClinic Diagnostic of Utah, L.L.C. (Utah)
|
•
|
MinuteClinic Diagnostic of Virginia, LLC (Virginia)
|
•
|
MinuteClinic Diagnostic of Washington, LLC (Oregon)
|
•
|
MinuteClinic Diagnostic of Wisconsin, L.L.C. (Wisconsin)
|
•
|
MinuteClinic Online Diagnostic Services, LLC (Delaware)
|
•
|
MinuteClinic Telehealth Services, LLC (Delaware)
|
•
|
Mississippi CVS Pharmacy, L.L.C. (Mississippi)
|
•
|
Missouri CVS Pharmacy, L.L.C. (Missouri)
|
•
|
Montana CVS Pharmacy, L.L.C. (Montana)
|
•
|
Nebraska CVS Pharmacy, L.L.C. (Nebraska)
|
•
|
New Jersey CVS Pharmacy, L.L.C. (New Jersey)
|
•
|
North Carolina CVS Pharmacy, L.L.C. (North Carolina)
|
•
|
Ohio CVS Stores, L.L.C. (Ohio)
|
•
|
Oklahoma CVS Pharmacy, L.L.C. (Oklahoma)
|
•
|
Omnicare, Inc. (Delaware)
|
•
|
ACS ACQCO CORP. (Delaware)
|
▪
|
Advanced Care Scripts, Inc. (Florida)
|
•
|
Omnicare Holding Company (Delaware)
|
▪
|
Evergreen Pharmaceutical of California, Inc. (California)
|
▪
|
JHC Acquisition, LLC (Delaware)
|
•
|
Geneva Woods Pharmacy, LLC (Alaska)
|
•
|
Geneva Woods Health Services, LLC (Delaware)
|
▪
|
Geneva Woods Retail Pharmacy LLC (Delaware)
|
▪
|
Geneva Woods LTC Pharmacy, LLC
|
•
|
Geneva Woods Pharmacy Wyoming, LLC (Delaware)
|
•
|
Geneva Woods Pharmacy Washington, LLC (Delaware)
|
•
|
Geneva Woods Pharmacy Alaska, LLC (Delaware)
|
▪
|
AMC - Tennessee, LLC (Delaware)
|
▪
|
CHP Acquisition, LLC (Delaware)
|
•
|
Home Pharmacy Services, LLC (Missouri)
|
▪
|
CP Acquisition, LLC (Oklahoma)
|
▪
|
Managed Healthcare, LLC (Delaware)
|
▪
|
Med World Acquisition Corp. (Delaware)
|
▪
|
Medical Arts Health Care, LLC (Georgia)
|
▪
|
MHHP Acquisition Company, LLC (Delaware)
|
▪
|
NCS Healthcare, LLC (Delaware)
|
•
|
NCS Healthcare of South Carolina, LLC (Ohio)
|
•
|
NCS Healthcare of Tennessee, LLC (Ohio)
|
•
|
NCS Healthcare of Kentucky, Inc. (Oh
|
•
|
NCS Healthcare of Montana, LLC (Ohio)
|
•
|
NCS Healthcare of New Mexico, LLC (Ohio)
|
•
|
UNI-Care Health Services of Maine, LLC (New Hampshire)
|
▪
|
NeighborCare, Inc. (Pennsylvania)
|
•
|
Three Forks Apothecary, LLC (Kentucky)
|
•
|
NeighborCare Holdings, Inc. (Delaware)
|
•
|
Badger Acquisition of Kentucky LLC (Delaware)
|
•
|
NeighborCare Services Corporation (Delaware)
|
▪
|
D & R Pharmaceutical Services LLC (Kentucky)
|
▪
|
NeighborCare Pharmacy Services, Inc. (Delaware)
|
•
|
APS Acquisition LLC (Delaware)
|
•
|
ASCO HealthCare, LLC (Maryland)
|
•
|
Badger Acquisition LLC (Delaware)
|
•
|
Badger Acquisition of Minnesota LLC (Delaware)
|
▪
|
Merwin Long Term Care, LLC (Minnesota)
|
•
|
Badger Acquisition of Ohio LLC (Delaware)
|
•
|
Best Care LTC Acquisition Company, LLC (Delaware)
|
•
|
Care Pharmaceutical Services, LP (Delaware)
|
•
|
CCRx Holdings, LLC (Delaware)
|
•
|
Continuing Care Rx, LLC (Pennsylvania)
|
•
|
CCRx of North Carolina LLC (Delaware)
|
•
|
Compscript, LLC (Florida)
|
•
|
Campo’s Medical Pharmacy, LLC (Louisiana)
|
•
|
Enloe Drugs, LLC (Delaware)
|
•
|
Evergreen Pharmaceutical, LLC (Washington)
|
•
|
Home Care Pharmacy, LLC (Delaware)
|
•
|
Interlock Pharmacy Systems, LLC (Missouri)
|
•
|
Langsam Health Services, LLC (Delaware)
|
•
|
LCPS Acquisition, LLC (Delaware)
|
▪
|
Omnicare Pharmacy of Tennessee LLC (Delaware)
|
•
|
Lobos Acquisition, LLC (Delaware)
|
•
|
Lo-Med Prescription Services, LLC (Ohio)
|
•
|
ZS Acquisition Company, LLC (Delaware)
|
•
|
NCS Healthcare of Illinois, LLC (Ohio)
|
•
|
NCS Healthcare of Iowa, LLC (Ohio)
|
•
|
Martin Health Services, LLC (Delaware)
|
•
|
NCS Healthcare of Kansas, LLC (Ohio)
|
•
|
NCS Healthcare of Ohio, LLC (Ohio)
|
•
|
NCS Healthcare of Wisconsin, LLC (Ohio)
|
•
|
North Shore Pharmacy Services LLC (Delaware)
|
•
|
Omnicare Indiana Partnership Holding Company LLC (Delaware)
|
•
|
Omnicare of New York, LLC (Delaware)
|
•
|
NeighborCare of Indiana, LLC (Indiana)
|
▪
|
Grandview Pharmacy, LLC (Indiana)
|
•
|
NeighborCare of Virginia, LLC (Virginia)
|
•
|
Omnicare Pharmacies of Pennsylvania West LLC (Pennsylvania)
|
•
|
Omnicare Pharmacies of Pennsylvania East LLC (Delaware)
|
•
|
Omnicare Pharmacy and Supply Services LLC (South Dakota)
|
•
|
Omnicare Pharmacy of the Midwest, LLC (Delaware)
|
•
|
Omnicare Property Management, LLC (Delaware)
|
•
|
Pharmacy Consultants, LLC (South Carolina)
|
•
|
PRN Pharmaceutical Services, LP (Delaware)
|
•
|
Roeschen's Healthcare LLC (Wisconsin)
|
•
|
PP Acquisition Company LLC (Delaware)
|
•
|
Specialized Pharmacy Services, LLC (Michigan)
|
•
|
Value Health Care Services LLC (Delaware)
|
•
|
VAPS Acquisition Company, LLC (Delaware)
|
•
|
Westhaven Services Co, LLC (Ohio)
|
▪
|
NIV Acquisition, LLC (Delaware)
|
▪
|
OCR Services, LLC (Delaware)
|
•
|
Shore Pharmaceutical Providers, LLC (Delaware)
|
▪
|
Omnicare of Nevada, LLC (Delaware)
|
▪
|
Omnicare Pharmacies of the Great Plains Holding, LLC (Delaware)
|
•
|
Omnicare of Nebraska LLC (Delaware)
|
▪
|
Pharmacy Associates of Glenn Falls, LLC (New York)
|
▪
|
Sterling Healthcare Services, LLC (Delaware)
|
▪
|
Superior Care Pharmacy, LLC (Delaware)
|
▪
|
TCPI Acquisition, LLC (Delaware)
|
▪
|
UC Acquisition, LLC (Delaware)
|
▪
|
Weber Medical Systems LLC (Delaware)
|
▪
|
Williamson Drug Company, LLC (Virginia)
|
•
|
CVS Pharmacy, Inc. (continued)
|
•
|
Oregon CVS Pharmacy, L.L.C. (Oregon)
|
•
|
Pennsylvania CVS Pharmacy, L.L.C. (Pennsylvania)
|
•
|
ProCare Pharmacy Direct, L.L.C. (Ohio)
|
•
|
ProCare Pharmacy, L.L.C. (Rhode Island)
|
•
|
Red Oak Sourcing, LLC (Delaware)
|
•
|
Rhode Island CVS Pharmacy, L.L.C. (Rhode Island)
|
•
|
South Carolina CVS Pharmacy, L.L.C. (South Carolina)
|
•
|
Tennessee CVS Pharmacy, L.L.C. (Tennessee)
|
•
|
Utah CVS Pharmacy, L.L.C. (Utah)
|
•
|
Vermont CVS Pharmacy, L.L.C. (Vermont)
|
•
|
Virginia CVS Pharmacy, L.L.C. (Virginia)
|
•
|
Warm Springs Road CVS, L.L.C. (Nevada)
|
•
|
Washington CVS Pharmacy, L.L.C. (Washington)
|
•
|
Wellpartner, LLC (Delaware)
|
•
|
West Virginia CVS Pharmacy, L.L.C. (West Virginia)
|
•
|
Wisconsin CVS Pharmacy, L.L.C. (Wisconsin)
|
•
|
Woodward Detroit CVS, L.L.C. (Michigan)
|
(1)
|
Registration Statement (Form S-3ASR No. 333-217596) of CVS Health Corporation, and
|
(2)
|
Registration Statements (Form S-8 Nos. 333-228622, 333-167746, 333-217853, 333-208805, 333-141481, 333-139470, 333-63664, 333-91253, 333-49407, 333-34927, and 333-28043) of CVS Health Corporation;
|
1.
|
I have reviewed this annual report on Form 10-K of CVS Health Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
February 28, 2019
|
By:
|
/
S
/ LARRY J. MERLO
|
|
|
|
Larry J. Merlo
|
|
|
|
President and Chief Executive Officer
|
1.
|
I have reviewed this annual report on Form 10-K of CVS Health Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
February 28, 2019
|
By:
|
/
S
/ EVA C. BORATTO
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Date:
|
February 28, 2019
|
/
S
/ LARRY J. MERLO
|
|
|
Larry J. Merlo
|
|
|
President and Chief Executive Officer
|
Date:
|
February 28, 2019
|
/
S
/ EVA C. BORATTO
|
|
|
Eva C. Boratto
|
|
|
Executive Vice President and Chief Financial Officer
|